Global risk sentiment last week began on a positive note on the backdrop of a positive US earnings season triggering the MSCI World pushing for highest levels since February 2018 and the S&P500 close to breaking all-time highs, printed in January 2018. However, with geopolitical concerns escalating in particular between Turkey and the US, global markets closed in negative. In Europe, the German DAX experienced its second weekly decline with Friday’s trading session erasing previous gains – the index is closing in on the 100-week SMA (currently at 12,260), which has provided support throughout 2018. Oil and gold both fell on back of a stronger US Dollar as well as a smaller-than-expected drop in US crude inventories on Wednesday.
Currency markets were full of action and the main driver for the market developments cross assets. The Turkish Lira was under fire and closed the week down 26.49% against the USD after being down close to 40% on Friday after US President Trump announced new trade tariffs against the Turkish metal sector. The Turkish Central Bank communicated that it would adjust its FX reserves to support the economy, but after the European Central Bank on Friday voiced concerns over European exposure to Turkey, the markets reacted by sending down the TRY even further – a move which triggered a sell-off of the EUR. (Please note that Tier1FX has temporarily suspended trading in TRY until further notice). So far in today’s trading session, the initiatives taken by Turkey over the weekend doesn’t seem to have the desired effect as USD/TRY and EUR/TRY are down 7.1% and 7.4% in time of writing.
The US Dollar continued on the bid across the board. EUR/USD was sent to 13-month lows and is currently supported by the 200-week SMA. A break of this would open up for a test of 1.13 before 1.1180. EUR/USD closed last week 1.4% lower and although some rebound can be expected, the outlook is bearish. IMM long EUR/USD positions halved in the week closing August 7th and with Italian concerns added on top (IT/GE-yield spreads are on the rise again), the Euro could be in for a tough September.
In the UK, the GBP took another beating on Brexit concerns with GBP/USD testing the lows from August 2017. A close below would give scope for a test of the June 2017 lows in the 1.2590-area.
In Asia, NZD/USD fell to lowest levels following a dovish RBNZ – posting a weekly decline of 2.4% – with last Fibo retracement level at 0.6540 acting as current support. A close below would open up for a test of 0.6420 before 0.6350-area.
After a relatively quiet Monday on the macro side, we have a busy week in front of us.
Tuesday, we start with Chinese Retail Sales YoY, which are expected to increase 9.1% against 9.0 prior. German GDP is also expected to show upbeat figures and German inflation is expected to stay calm. Euro Zone GDP Flash Q2 is expected unchanged QoQ/YoY at 0.3%/2.1% while the Euro zone June Industrial Production is expected to drop -0.4% in June.
Wednesday, UK inflation data for July is out at 10:30CET with the yearly CPI expected to increase a tad to 2.5% from 2.4% in June. From the US, the July Retail Sales are expected to show a headline figure of +0.1% compared to 0.5% in June, while the core figure is expected at 0.3% against 0.4% in June.
Thursday, we have the Japanese Trade Balance and Australian Employment data from Asia while the European session will reveal the July Retail Sales data from the UK (exp. At +0.2% vs. -0.5% in June). In the US, the July Housing Starts will be out as well as the Building Permits, both at 14:30CET.
Friday, we start out with HICP data from the Euro Zone at 11:00CET and Canadian CPI data at 14:30CET. The week will end on the macro front with the US University of Michigan Sentiment for August at 16:00CET, expected to increase to 98 from 97.9.