Euro touches lowest in more than a year as Turkey effect continues

Turkey says it has an action plan

The EUR touched a 13-month low versus the US dollar as trading got underway this week, with markets preparing for more turmoil involving the Turkish lira. The seemingly unstoppable downward spiral in Turkey’s currency and economy is raising concerns about European banks’ exposures to the country helped spark contagion fears while safe haven flows saw German 10-year bond yields edge lower.

The EUR touched 1.1366, the lowest since July last year though has since rebounded as traders focused on comments from Turkish Finance Minister Berat Albayrak who said the country had drafted an action plan to ease investor concerns. He added that the banking watchdog had also limited swap transactions in the currency. There were no details on the so-called plan, so the bounce so far has been muted. The lira extended its weakening bias, hitting a new record low of 7.0081 versus the US dollar. EUR/USD is currently trading at 1.1381.

EUR/USD Daily Chart

Source: Oanda fxTrade

Oil attempts to keep its firmer bias

Tight supply conditions pushed oil prices higher as trading got under way though concerns about a possible near-term drop in demand capped gains. In the longer run, oil demand is seen rising to 1.5 million barrels per day in 2019, up from 1.4 million barrels per day this year, according to the monthly IEA market report released Friday. WTI is currently trading at 67.91 after touching 68.17 earlier. Near-term, WTI appears capped by the 100-hour moving average which currently sits at 68.27.

WTI Hourly Chart

Source: Oanda fxTrade

China data scheduled

We are awaiting some second-tier loans data from China this morning. Growth in new loans is expected to slow to 1.21 billion yuan in July while the M2 money supply is expected to advance 8.2% y/y that month. Foreign direct investment could also be released today.

Sentiment readings for Australia’s business conditions and business confidence are also due sometime this morning. The last readings were 15 and 6 respectively.

The full MarketPulse data calendar can be viewed here: https://www.marketpulse.com/economic-events/

OANDA Market Insights podcast (episode 27)

OANDA Market Insights podcast (episode 27)

OANDA Senior Market Analyst Alfonso Esparza reviews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.

This week’s biggest stories: US sanctions against Iran, Turkish lira collapse after steel sanctions and market reaction to UK GDP data

Big revisions offset July miss on payrolls

Another strong US jobs report expected today

The PBoC giveth the PBoC taketh

Dollar Higher as Risk Appetite Vanishes

The US dollar appreciated versus most major pairs on Friday. The Japanese yen outperformed the greenback as a safe haven, but all other major currencies suffered heavy losses during the week. Tense trade developments between China and the US and Friday’s drop in the Turkish lira dragged emerging and developed markets lower as US sanctions were doubled. Geopolitics drowned out most of the impact of economic releases with US inflation hitting a new high and Canadian part time jobs driving a drop in the unemployment rate.

  • Turkish lira fell more than 20 percent in a week
  • US retail sales to remain subdued
  • UK retail sales to show more evidence of solid summer

European Bank Exposure to Turkey Hits EUR

The EUR/USD lost 1.2 percent in the last five days. The single currency is trading at 1.1398, with the pair looking to fall further after breaking through the 1.14 barrier. The economic calendar does not feature major events in Europe and with current geopolitical tension the single currency remains vulnerable against the safe haven dollar.



US inflation is 2.94 percent, and with core inflation is back to 2008 levels at 2.4 percent the case for two more rate hikes by the U.S. Federal Reserve this year remains strong. The monetary policy divergence between the European Central Bank (ECB) and the U.S. Federal Reserve has been a factor, but remains in the background as geopolitical forces have proven to have a bigger impact in 2018.

Italian, Spanish and French banks are reported to have loans worth $150 billion in Turkey. The falling Turkish lira will make those loans denominated in foreign currency harder to repay which is why the EUR has touched record lows on Friday. The European stock market has already witnessed a sell off of financial institutions.

Turkey President Erdogan was defiant and called for the population to defend the currency by selling their US dollars and gold holdings instead of trying to open a dialogue with the US regarding steel tariffs.

Loonie Grounded Despite Strong Jobs Report

The USD/CAD gained 0.77 percent during the week. The Canadian dollar is lower on Friday. The USD/CAD is trading at 1.3145. Statistics Canada released a stronger than expected employment report with a huge gain of 54,100 jobs driving the unemployment rate down to 5.8 percent in July. The loonie failed to gain momentum from that economic indicator release given the current geopolitical climate.


Canadian dollar weekly graph August 6, 2018

A flight to safety from investors has given a boost to traditional safe havens like the JPY, CHF, USD and gold. The Turkish lira has been in free fall and has triggered contagion fears as Spain, Italy and France have high exposures.

The strong jobs report adds to the probability the Bank of Canada (BoC) will hike the benchmark interest rate one more time in 2018. The BoC raised its overnight target rate to 1.50 percent on July 11 with the growth of the economy picking up for a follow up rate hike in October.

The Canadian currency was lifted by the solid jobs report, but not enough to send the loonie into the black on Friday. The indicator comes during a tense trading environment where risk appetite is subdued. 

Pound Lower on Brexit Despite Strong GDP Numbers

The GBP/USD lost 1.64 percent in the last five days. The currency pair is trading at 1.2755 near a one year low after no deal Brexit probabilities rose. The divorce negotiations between the UK and the EU have been short on positives with an 8 month period to sort out a lot of tough negotiations.



The market has priced in the scenario of the UK exiting the single market with no trade deal in place. The ball is back on the government of Theresa May to come up with a package that not only satisfies supporters at home, but more importantly is acceptable for the EU. So far that balancing act has not been achieved and has put the leadership of Theresa May into question with an almost imminent vote of confidence in the near term.

The decision of the Bank of England (BoE) to lift rates last week was unanimous, but it could end up being the only pro-active decision by the central bank in 2018 as it heads into reactive territory.

Yen Keeps Up With Dollar in Turbulent Times

The USD/JPY lost 0.51 percent during the last five trading sessions. The currency pair is trading at 110.59. The Japanese currency has appreciated but it has done so less than other times of uncertainty in the market. The use of economic sanctions by the Trump administration was a recurring theme this week causing high volatility in emerging markets.



The JPY continues to trade in a tight range despite the global uncertainty but the safe haven appeal of the currency has set it apart from other Asian currencies that have depreciated as trade war concerns rise.

Market events to watch this week:

Tuesday, August 14
4:30am GBP Average Earnings Index 3m/y
9:30pm AUD Wage Price Index q/q
Wednesday, August 15
4:30am GBP CPI y/y
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:30am USD Crude Oil Inventories
9:30pm AUD Employment Change
Thursday, August 16
4:30am GBP Retail Sales m/m
8:30am USD Building Permits
7:30pm AUD RBA Gov Lowe Speaks
Friday, August 17
8:30am CAD CPI m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

USD/CAD Canadian Dollar Lower on Contagion Fears

Canadian Jobs Impress but Loonie Lower on Global Contagion Fears

The Canadian dollar is lower on Friday. The USD/CAD is trading at 1.3083. Statistics Canada released a stronger than expected employment report with a huge gain of 54,100 jobs driving the unemployment rate down to 5.8 percent in July. The loonie failed to gain momentum from that economic indicator release given the current geopolitical climate.

A flight to safety from investors has given a boost to traditional safe havens like the JPY, CHF, USD and gold. The Turkish lira has been in free fall and has triggered contagion fears as Spain, Italy and France have high exposures.


usdcad Canadian dollar graph, August 10, 2018

The strong jobs report adds to the probability the Bank of Canada (BoC) will hike the benchmark interest rate one more time in 2018. The BoC raised its overnight target rate to 1.50 percent on July 11 with the growth of the economy picking up for a follow up rate hike in October.

The Canadian currency was lifted by the solid jobs report, but not enough to send the loonie into the black on Friday. The indicator comes during a tense trading environment where risk appetite is subdued.

USD/CAD plummets on Canadian jobs report

Canadian jobs market is on fire

By the numbers:

  • Canada Jul Net Jobs +54,100 From Jun
  • Canada Jul Net Jobs Forecast At +17,000
  • Canada Jul Full-Time Jobs -28,000; Part-Time +82,000
  • Canada Jul Jobless Rate 5.8%; Jun 6.0%
  • Canada Jul Jobless Rate Forecast At 5.9%
  • Canada Jul Avg Hourly Wages +3.2% From Year Ago
  • Canada Labor Force +19,100 In Jul From Jun
  • Canada Jul Participation Rate At 65.4% Vs 65.5% In Jun
  • Job creation flew by market expectations in July as large gains in part-time and public sector positions helped push down the unemployment rate by two-tenths.

    Canada added a net +54.1K jobs in July on a seasonally adjusted basis. The market was looking for a net gain of +17K.

    Canada’s new jobless rate fell to +5.8% in July, down from +6% in June. The market was looking for an unemployment rate of +5.9%.

    The loonie is off from its intraday low of C$1.3122 and currently trading C$1.3062 immediately after the release.

    Turkey investors take a bath

    Today’s sharp slide in the Turkish lira (currently down -6% at $5.9446, but was down -15% at $6.200 at one point) has obviously seeped through into broader financial markets, causing the USD and JPY to jump on safe haven flows and equities to fall, while the EUR (€1.1469) is stung by concerns over European banks’ exposure to Turkey.

    Today’s dramatic drop was instigated by a Financial Times report that the European Central Bank (ECB) is examining the Turkish exposure of several of the region’s banks.

    “The ECB’s banking watchdog is monitoring the situation in Turkey and is in contact with eurozone banks about their individual exposures to the country.”

    Nevertheless, it’s believed that the level of overall exposure of European banks to Turkey remains limited.

    Note: Three banks named in the piece tumbled, with Spain’s Banco Bilbao Vizcaya Argentaria SA falling 3.5%, Italy’s UniCredit SpA down 3.2% and France’s BNP Paribas SA down 3.8%.

    The markets biggest concern is whether President Erdogan is threatening the independence of the Central Bank of the Republic of Turkey (CBRT).

    The central bank left interest rates unchanged last month, and the belief is that political pressure is keeping the central bank from taking the necessary steps.

    Now the train of thought is that an emergency interest rate hikes during this current currency crisis might only provide fleeting relief. They are expected to raise interest rates over the next week or two.

    The market is currently waiting for Turkey’s Finance Minister to unveil their new economic model – odd’s are it will do nothing to stem the tide of negativity towards emerging market currencies at the moment.

    Some other emerging-market currencies also weakened, with the ZAR ($13.8964 up +1.6%) and the Hungarian forint ($281.68 up +1.3%) both tumbling. The Russian ruble (RUB) has also hot a new two-year low this morning at $67.1518.

    Weekly Review: Complacency Returns to Markets Even With the Trade Talk

    This week, with little economic data coming through, the biggest news was on trade. Trade has continued to dominate the financial markets as the two biggest economies flex their muscles. On Wednesday, the Chinese government announced fresh tariffs on US imports such as cars and crude oil. The total tariffs announced were worth more than $16 billion and showed that the two countries will continue to battle. Earlier in the week, a representative of the Chinese government said that companies like Apple will likely be used for bargaining purposes. Still, the trade issues did not have major impacts on the financial markets. As shown below, the volatility index continued to decline during the week.

    The Reserve Bank of Australia met earlier in the week and announced its interest rates decision. The central bank left interest rates unchanged as was expected. In the statement that followed, the bank’s officials said that there was a likelihood that they would move on interest rates in a near future. They pointed to the growing Australian economy, which has seen falling unemployment rate and increased labour market tightening.

    After the RBA, the Reserve Bank of New Zealand (RBNZ) met and left rates unchanged. Their rate decision was expected. What was not expected was the decision to leave rates unchanged until 2020. This pushed the New Zealand dollar down to the lowest level in almost one year as shown below.

    The British pound was a major loser this week. The decline started on Monday after the Foreign affairs secretary, Liam Fox sounded a warning about the risks of a no-deal Brexit. He said that there was a 60% chance that there will be a no-deal Brexit. This was less than a week after the Bank of England (BOE) governor sounded a warning, saying that the risk of a no-deal Brexit was uncomfortably high. Last week, the European Union main negotiator rejected parts of the proposals of Theresa May. The two sides have a point to prove. The European Union wants to be tough on the UK to prevent other members from leaving. The UK on the other hand wants a deal that will likely lead to other countries wanting to leave the union.

    Another big news was about the US sanctions on Russia. The Trump administration announced fresh tough sanctions on Russia for a poisoning incident in the UK. Russia has denied involvements in the poisoning. The sanctions came two weeks after Trump met with the Russian president, Vladmir Putin in Helsinki for a controversial summit. The new sanctions led to a sharp decline in the Russian ruble.

    Finally, CPI numbers were big news this week. Yesterday, data from China showed that the CPI was 2.1%, which was higher than the expected 2.0%. The United States is expected to release their CPI data. The US data is expected to show that the CPI rose by 3.0%.

    On Friday, data from Japan showed that the GDP for the second quarter was at 1.9%, which was higher than the expected 1.4%. The United Kingdom is also expected to release the GDP numbers.

    The post Weekly Review: Complacency Returns to Markets Even With the Trade Talk appeared first on Forex.Info.

    Reuters Poll Shows Loonie Rising But NAFTA a Question Mark

    Canada’s dollar will rise over the coming year as the Bank of Canada hikes interest rates and higher oil prices become more supportive of the currency, a Reuters poll showed, but it will take a NAFTA trade pact deal to trigger more optimistic gains.

    The poll of more than 40 foreign exchange strategists predicted the Canadian dollar, which has been pressured this week by a diplomatic dispute between Saudi Arabia and Canada, will edge higher to C$1.30 to the greenback, or 76.92 U.S. cents, in three months, from C$1.3023 on Wednesday.


    usdcad Canadian dollar graph, August 9, 2018

    The currency is expected to climb further to C$1.26 in a year, matching the forecast of the July poll.

    “The core of the loonie outlook for us is that Canada has one of the very few central banks, arguably the only central bank, that is on a hiking cycle that is broadly comparable to what the Federal Reserve is doing,” said Ranko Berich, head of market analysis at Monex Canada and Monex Europe.

    The Bank of Canada, which expects the rate of the country’s economic growth to accelerate to 2.8 percent in the second quarter, has raised interest rates twice since January to match the pace of the Federal Reserve this year.

    Money markets expect the Bank of Canada to hike once more by December. Its benchmark interest rate is 1.75 percent.

    via Kitco

    Canada: New Housing Price Index, June 2018

    New home prices increased in June, marking the first upward movement since November 2017.

    New Housing Price Index, monthly change

    Nationally, new house prices edged up 0.1% in June, largely due to rising construction costs across the country. The cost of softwood lumber, which is widely used in residential construction, has been on the rise. According to the Industrial Product Price Index, the price of softwood lumber (except tongue and groove and other edge worked lumber) rose 34.3% year over year in June.

    Among the 11 surveyed census metropolitan areas (CMAs) reporting growth in June, the largest increases were in Montréal (+1.0%) and Ottawa (+0.7%). Builders in both markets linked the gains to rising construction and land development costs. Other notable rises occurred in St. Catharines–Niagara (+0.5%) and Greater Sudbury (+0.4%).

    In the west, prices for new homes were up in Calgary (+0.3%), Edmonton (+0.2%) and Vancouver (+0.2%). The increase in Vancouver follows five months of flat prices.

    Six CMAs reported declines in June, with Oshawa (-0.3%) registering the largest decrease.

    New home prices were unchanged in Toronto in June. Prices in this market have been flat or declining since November 2017.

    New Housing Price Index, 12-month change

    New house prices rose 0.8% year over year in June. The largest 12-month gains were in Ottawa (+5.0%) and London (+4.8%).

    Among the four CMAs reporting declines, Toronto (-1.3%) and Regina (-1.2%) recorded the largest 12-month decreases.

    StatsCanada

    U.S Producer Price Indexes – July 2018

    The Producer Price Index for final demand was unchanged in July, seasonally adjusted, the U.S.
    Bureau of Labor Statistics reported today. Final demand prices advanced 0.3 percent in June and
    0.5 percent in May. (See table A.) On an unadjusted basis, the final demand index increased 3.3
    percent for the 12 months ended in July.

    In July, a 0.1-percent rise in the index for final demand goods offset a 0.1-percent decline in
    prices for final demand services.

    The index for final demand less foods, energy, and trade services moved up 0.3 percent in July,
    the same as in June. For the 12 months ended in July, prices for final demand less foods, energy,
    and trade services climbed 2.8 percent.

    Final Demand

    Final demand goods: The index for final demand goods inched up 0.1 percent in July, the same as
    in June. The July advance in prices for final demand goods can be traced to a 0.3-percent rise in the
    index for final demand goods less foods and energy. In contrast, prices for final demand energy fell
    0.5 percent, and the index for final demand foods decreased 0.1 percent.

    Product detail: In July, a major factor in the increase in prices for final demand goods was the index
    for pharmaceutical preparations, which rose 0.7 percent. Prices for eggs for fresh use, fresh fruits and
    melons, motor vehicles, and liquefied petroleum gas also moved higher. Conversely, the electric
    power index fell 1.6 percent. Prices for meats; hay, hayseeds, and oilseeds; and nonferrous scrap also
    decreased. (See table 4.)

    Final demand services: Prices for final demand services edged down 0.1 percent in July, the first
    decline since falling 0.2 percent in December 2017. The July decrease is attributable to the index for
    final demand trade services, which moved down 0.8 percent. (Trade indexes measure changes in
    margins received by wholesalers and retailers.) In contrast, prices for final demand services less
    trade, transportation, and warehousing and the index for final demand transportation and
    warehousing services advanced 0.3 percent.

    Product detail: Leading the July decline in prices for final demand services, margins for fuels and
    lubricants retailing dropped 12.7 percent. The indexes for machinery and equipment parts and
    supplies wholesaling, food retailing, hospital outpatient care, and airline passenger services also
    moved lower. Conversely, prices for guestroom rental climbed 3.9 percent. The indexes for apparel,
    jewelry, footwear, and accessories retailing; inpatient care; and truck transportation of freight also
    increased.

    U.S Bureau of Labor statistics