No parachute for Turkish Lira

GBP

The Pound gave false hopes of ending its run of five consecutive daily losses against the Dollar, with a gain of nearly 0.5% before lunchtime. Following 4 days of losses against the Euro, a 0.3% rally petered out at the same time, but the Pound held its ground in light of European woes. Sterling’s brief recovery was due to profit-taking on recent short trades (buying after the price had fallen). By the afternoon, the Dollar momentum pushed the Pound from 1.2911 to 1.2830 at close of play.

This morning, UK GDP for Q2 is forecast to print a 0.4% gain against the Q1 figure of 0%. The UK returning to growth, and recent reports of the European Union preparing Brexit concessions for Theresa May, are both set to ease Sterling selling pressure after it fell through the 1.2800 at market open this morning.

If the data fails to live up to forecasts, we can expect the Pound to resume its slide, but better figures would test the resolve of Sterling bulls, following a collective loss of faith at last week’s BoE rate hike

EUR

Yesterday saw the Euro slump to a 13-month low at below the 1.1500 mark against the Dollar, and below 1.1200 against the Pound, mainly due to the ECB’s concern over some European banks’ exposure to Turkey.

The Financial Times reported the European Central Bank’s (ECB) concerns over the exposure of some European banks, including the likes of Unicredit, BNP Paribas, and BBVA, to Turkish business. Amidst the sharp sell off in the Turkish Lira, which has dropped 30% in value this year, the Euro fell across the board.

This morning, however, has seen a slight rise off the back of news that Europe is going to give concessions to the UK in order to keep negotiations open and going forward. This is the first time that Europe seems to have softened their stance, and the markets have reflected that positive move.

From an economic data perspective, and keeping in form with the rest of the week, there is almost no data in the Eurozone today. A trade balance EU for June and a global trade balance for June are the only two pieces of data, but there is no volatility expected around these releases.

USD

US producer prices failed to meet the forecast of a 0.2% gain in July, producing the same figure as June, and the annual increase dipped to 3.3% from 3.4%. Jobless claims declined to 213,000 from a revised 219,000 previously, and slightly below consensus forecasts which maintained confidence in the labour market.

Chicago Fed President Evans stated that US economic performance made him much more confident that inflation would now remain close to the 2% level. He added that he expected one or two further rate increases this year, with the relatively hawkish tone supporting the Dollar.

The Dollar gained impetus and the trade-weighted index closed at a 2018 high. The Dollar surged in the early hours, with a Euro drop below the 1.1500 level, triggering aggressive stop-loss selling, boosting the momentum to 1.1450. Very heavy Turkish lira selling is undermining the Euro.

Today sees US inflation figures, otherwise known as the Consumer Price index (CPI), for the month of July, while the US-China trade dispute and Turkey should also be centre stage.

Data to watch:

02:30    AUD RBA Monetary Policy Statement
09:30    GBP Gross Domestic Product (YoY) (Q2)
09:30    GBP Gross Domestic Product (QoQ) (Q2)
09:30    GBP Manufacturing Production (YoY) (Jun)
09:30    GBP Industrial Production (MoM) (Jun)
09:30    GBP Manufacturing Production (MoM) (Jun)
09:30    GBP Gross Domestic Product (MoM) (Jun)
13:30    USD Consumer Price Index Ex Food & Energy (MoM) (Jul)
13:30    USD Consumer Price Index (YoY) (Jul)
13:30    USD Consumer Price Index (MoM) (Jul)
13:30    USD Consumer Price Index Ex Food & Energy (YoY) (Jul)
13:30    USD Consumer Price Index Core s.a (Jul)
13:30    CAD Participation rate (Jul)
13:30    CAD Net Change in Employment (Jul)
13:30    CAD Unemployment Rate (Jul)
18:00    USD Baker Hughes US Oil Rig Count
19:00    USD Monthly Budget Statement (Jul)

 

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