Thursday August 16, 2018 - 13:24:04 GMT
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Turkey Political and Currency Crisis Dominates Late Summer Trade
John M. Bland, MBA, co-founder, Global-View.com
Turkey Crisis Dominates Trading Activity The political and currency crisis in Turkey dominated trade at the end of last week and in the first part of the current week. There are many dimensions to the problem. Markets were most worried about the risk of contagion, however, only a handful of European banks were exposed to Turkey. Furthermore, the risks of significant problems in the European banking system were seen as minimal. The European Central Bank (ECB) has been keeping a close eye on the situation and has ready to act if needed. The imposition of tariffs by President Trump on Turkey over the detention of an American Pastor has been one focal point of the political crisis. The imposition of tariffs saw the Turkish Lira weaken substantially versus the USD and EUR early in the week before recovering on Tuesday and Wednesday. The preferred trade in the markets was to buy EUR against the Lira. These trades were unwound suddenly on Tuesday when the Lira recovered and the EURUSD fell. Some attributed the sudden change to large-scale intervention by the Turkish Central Bank which turned the tide on that day. The Turkish Lira (USDTRY) is not a top tier trading currency, so liquidity at times can be light and price swings can be significant.
Another dimension to the issue is Turkey’s membership in NATO. This is a touchy issue with the nation holding top of the line U.S. fighter jets and Russia in the process of selling a sophisticated line missile defense system to Turkey. The U.S. is worried about what defense secrets might fall into the hands of the Russians.
Movements in and out of the EURUSD and USDTRY have resulted in net weakness in the EURUSD over the past week. This is not welcome news in Washington, but up until now the President has not tweeted again over fresh concerns about new USD forex strength. Traders remain at risk to the next political headline on the wires and this concern has led to a diminution of liquidity in the forex markets. Late Wednesday and early Thursday trade saw USDTRY stabilizing and short-covering supporting EURUSD as trade started to return to more “normal” conditions.
Mon 20 Aug 2018
No Major Data
Tue 21 Aug 2018
No Major Data
Wed 22 Aug 2018
AA 12:30 CA- Retail Sales
A 14:00 US- Existing Homes Sales
A 14:30 US- EIA Crude
AA 18:00 US- Fed Policy Minutes
Thu 23 Aug 2018
AFlash Service PMIs
A 12:30 US- Weekly Jobless
Fri 24 Aug 2018
A 12:30 US- Durable Goods
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