EM crisis looms as currencies fall
Fundamental outlook
THERE is a growing fear of a looming crisis in emerging markets (EM) as currencies fell after Argentina and Turkey’s currencies staged a stark decline for the past few weeks. US economic growth in the second quarter (2Q) was the highest in four years. Trade talks were held between US and Canada on the renegotiation of the North America Free Trade Agreement (NAFTA) and it is set to continue this week. The European economy showed sign of a slowdown as consumer prices missed consensus’ expectations.
US Conference Board of Consumer Confidence climbed to 133.4 in August, exceeding forecast. US GDP in 2Q rose 4.2 per cent, the best recorded in nearly four years. Pending homes sales slid 0.7 per cent against a one per cent gain in June.
US consumer spending rose 0.4 per cent in July, matching forecast. Weekly claims for jobless benefits were at 213,000, matching expectations.
The Trump administration said they would consider another tariff of US$200 billion on Chinese imported goods in September. Trade talks with Canada did not come into conclusion last Friday and President Donald Trump mentioned that he wanted a settlement deal within 90 days.
Argentina and Turkish currencies fell amid weakness in RM, causing worries on currency crisis that may lead into next year.
China’s manufacturing index rose to 51.3 in August, matching forecast. China’s services index performed better than consensus’ expectations at 54.2 reading.
German Ifo business climate rose to 103.8 in August, the highest in five months. Consumer prices grew 0.1 per cent in August, in line with forecast.
Consumer prices in the eurozone grew two per cent in August while core prices gained one per cent. Both marginally missed forecast.
UK mortgage approvals stagnated at 65,000 in July. Consumer borrowing slowed down to four billion pounds, lower than June’s 5.4 billion pounds.
Technical forecast
US dollar/Japanese yen topped the 111.70 region last week and fell before the weekend. This week, we reckoned the dollar would climb again and pull up the market. The range is expected to move in a narrow range from 110.50 to 111.70 region but if it exceeds either side, it could lead to a new direction. Overall, the trend is prone to rise.
Euro/US dollar traded in mild selling sentiment last week. This week, initial range is expected to move from 1.1530 to 1.1730 region wile waiting for a breakout on either end. It will be crucial to observe the dollar index (USDX) for indications on its trend.
British pound/ US dollar is trading on a mild recovery trend. Technically speaking, the trend is supported at 1.2900 level and would likely rise further this week if it breaks beyond the 1.3050 area. A higher target is placed at 1.3250 in case of a breakout. However, abandon this uptrend view if this reverses beneath the 1.2900 level.
Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 29 years of global trading experiences. You may reach him at dar@pwforex.com.