Flash crash

Dunya Executive - - REPORT - Piotr Matys, strategist, Rabobank

Apple’s shocking revenue warning caused a flash crash across various FX crosses overnight. Much weaker than initially anticipated demand for the iPhone was attributed to a slowdown in China. The news spooked already nervous market participants, amongst them Japanese retail investors who seek opportunities across high yielding EM currencies. This explains, at least to some extent, why USD/TRY suddenly spiked to 5.8788 overnight as USD/JPY flash crashed to 104.87 low from around 108.70 amid low liquidity due to a Japanese holiday. While USD/TRY has trimmed its gains to 5.4475 at the time of writing, the price action implies that an important bottom may have been formed throughout November and December. This in turn could prove a platform for USD/TRY to regain upside traction in the coming weeks. The 5.46/45 is a crucial pivot to watch in USD/TRY at this stage. A sustained break higher would be an ominous signal for Turkey, which requires a stable lira to avoid a prolonged recession accompanied by persistently high inflation. Apart from an unfavourable global backdrop dominated by concerns about China’s slowdown amid the trade war with the U.S., a bullish breakout in USD/TRY could be triggered by rising market concerns that Turkey could deploy fiscal stimulus ahead of important local elections in March instead of focusing on implementing urgently required structural reforms. Another catalyst could be a premature interest rate cut by the CBRT following a deceleration in inflation. Consumer prices slowed down further to 20.3 percent y/y in December from 21.62 percent in November. Admittedly, this is a very encouraging signal for Turkish households which have been under tremendous pressure of the rising cost of living over the past few months. One could argue that the CBRT may seriously consider a rate cut as soon as Q1. However, high interest rates are a major source of support for the lira and lowering them at the time when market sentiment is fragile would be counterproductive. (January 3)

Newspapers in Turkish

Newspapers from Turkey

© PressReader. All rights reserved.