Euro Tanks, Dollar Index Surges, Stocks, Yields Slump
USD – Index surges to June 2017 highs
EUR – tanks 1% on bank exposure to Turkey
AUD – plummets, risk-off, metals, EM’s fall
JPY – rallies against USD, Euro, risk aversion rise
CAD – lower despite strong Employment data
TRY – plunges, down 15% against USD at close
US Ten-year bond yield – slumps 6 basis points to 2.87%
Recap: Turkey’s crisis hit critical levels in its ongoing tiff with the US over a jailed American pastor in Turkey. A massive sell-off in Turkish assets and the TRY (Turkish Lira) saw Emerging Market and risk assets plunge on contagion risks. USD/TRY finished up 15% at the New York close. The Euro tanked, finishing 1.01% down on fears about European bank exposure to Turkey. The Dollar Index (USD/DXY) surged 0.8 to 96.266, the highest since June 2017. Global stocks and yields slumped.
Outlook: Turkey’s woes triggered the risk-off tone on Friday and was responsible for most of the Dollar’s surge. Turkey’s president Erdogan antagonized the US, calling the crisis an economic war. US President Trump proposed a doubling of metal tariffs on Turkey. The US Dollar soared against the Emerging Market currencies, climbing 3% against the Russian Rouble and South African Rand.
Trading View: The Turkish Lira has plunged over 40% against the Greenback this year on worries of Turkish President Erdogan’s grip on the economy. Relations with the US have deteriorated since May. Analysts worry that the plunge in the currency will see a recession in the economy which could trigger a banking crisis. Wider economic spill overs are expected to be modest even for the Euro Zone. Market focus in Asia today will be on Turkey with little primary economic date due.
US Headline and Core CPI data prints were as forecast which supports a Fed September rate hike. While the outlook for the US Dollar remains positive, it is very much overextended. The latest CFTC/Reuters report for the week ended 07 August saw an increase in net speculative long US Dollar bets.
The flight-to-quality saw the benchmark US 10-year bond yield slump to 2.87% from 2.93% Friday. Germany’s 10-year bond yield dropped 6 basis points to 0.31%. The yield on Japan’s 10-year JGB closed at 0.09% from 0.10% Friday.
The Trump administration is wary of further US Dollar strength, particularly when the currency moves one -way. It’s a matter of time before they make that known.
The short-term Dollar remain bid, but the risks for a decent correction are building.
USD/DXY – The Dollar Index surged past the 96.00 level to close at 96.266 in New York mainly on the Euro’s fall. Overnight high traded was 96.45 which is the immediate resistance for today. The Dollar Index traded to highs not seen since June 2017. Immediate support can be found at 96.00 and then 95.70. The Euro and Sterling which combined, take 69.5% for the weight in the Dollar Index and will continue to be its main driver. Likely range today 95.80-96.40. Prefer to sell rallies, the Dollar is overextended.
EUR/USD – tanked through the trendline support level of 1.1500, dropping as low as 1.13708 in early Asia today, mirroring the early moves in the Turkish Lira. The USD/TRY soared to a high of 7.1153 before dropping dramatically to its current 6.60 level. On Friday, the USD/TRY closed at 6.42, up 15%. The Euro has rallied back to 1.1404 this morning, not far from its 1.1410 close. Contagion threats from Turkey’s banks will continue to weigh on the Euro which has fallen almost 3% against the Dollar in August. The latest CFTC/Reuters reports saw net speculative Euro long bets pared to +EUR 10,600 contracts from the previous week’s +EUR 22,800. These are the smallest number of long Euro bets since May 2017. EUR/USD has immediate support at 1.1370 (this morning’s low). The next support level comes in at 1.1330 and then 1.1280. Immediate resistance can be found at 1.1430 and then 1.1480. A relief rally is a real possibility which should see today’s range likely 1.1380-1.1480. Prefer to buy dips today, the Euro move lower is over extended.
AUD/USD – plunged to a low of 0.7270 in early Asian trading this morning following a New York close of 0.7297. The slump in risky assets, EM and Asian currencies and lower metals prices all pushed the Aussie lower. AUD/USD broke through the previous support level of 0.7320. The Aussie was trading at 0.7375 on Friday morning. The latest CFTC/Reuters report saw an increase in net speculative Aussie short bets to -AUD 54,500 contracts from -AUD 50,500. Immediate support lies at 0.7270, this morning’s low. The next support level comes in at 0.7240. Immediate resistance can be found at 0.7330 and then 0.7380 today. The Aussie shorts are building and overextended as well. Likely range today 0.7285-0.7385. Prefer to buy dips.
USD/JPY – slipped to 110.40 earlier this morning from it’s NY close of 110.90. USD/JPY trades currently at 110.62. The risk-off mode will keep USD/JPY capped. Immediate resistance lies at 110.90 and then 111.20. Immediate support can be found at 110.40/50 and then 110.10. The next support level lies at 109.80. The latest CFTC/Reuters report saw a trimming down of net speculative JPY shorts to -JPY 62,800 bets from -JPY 68,500. Likely range today 110.00-111.00. Prefer to sell rallies.
USD/CAD – The Dollar rallied against the Canadian Dollar despite robust Canadian Employment numbers released on Friday which beat expectations. Canada’s Jobless rate also fell to 5.8% from 5.9% which are near the lows in over 8 years. The fall in Brent Crude Oil prices weighed on the Loonie. USD/CAD closed at 1.3135 on Friday, up 0.63% from 1.3050. The Dollar jumped to 1.3163 in early Asia from 1.3135 NY close. Immediate resistance can be found at 1.3160/70 and then 1.3200. Immediate support lies at 1.3100 and then 1.3060 and then 1.3030. Look to sell USD/CAD rallies with today’s likely range 1.3060-1.3160. Prefer to sell rallies.
Just another manic Monday, happy trading all.