Turkish Lira fireworks are back with a bang in the EM scene. TRY plunged at the start of Monday trading after Erdogan fired central bank governor Naci Agbal following a rate hike. EM currencies were pressured across the board, prompting USD higher and metals lower in early Asi trade. The week starts with a heavy dose of Powell appearances.  The chart below suggests volatility in EMFX may be showing a possible inv H&S formationm as its correlation reaffirms with DXY.

The market had only-recently began to give the lira some credibility after years of ill-fated meddling with the central bank. On Friday, The Economist wrote a glowing article on Agbal for restoring credibility and breathing new life into the currency, in part by raising rates by 675 bps since November.

Instead he was sacked. The market didn't see it coming at all with the lira posting a strong two-day rally on Thursday and Friday. With Erdogan installing an ally and proponent of lower rates, the lira fell 17% at the open before trimming its decline to 12%.

For non-TRY traders, the question is whether this will spread or kickoff larger problems in emerging market currencies.

There will certainly be some broader fallout in the day ahead but it's not likely to last. Turkey has its own set of problems and there's a certain financial ring-fence around the region. From Aug-Nov last year, USD/TRY rose 4% and there was little fallout elsewhere.

The larger problem is inflation, which was running at over 15% in Turkey. Emerging markets have also wracked up large debts during the pandemic but don't have the luxury of structural disinflation and QE. That problem isn't unique to Turkey and it's worth worrying about how other countries cope.

The good news is that huge US stimulus and high spending in other developed countries should spill over and allow governments to put budgets on track. Commodity inflation is a double-edge sword. It's a net-benefit to many emerging markets but importers like Turkey lose out on the growth and also suffer from the inflation.

Looking at the week ahead, the Fed will remain in focus with Powell speaking Mon, Tues and Wed at various events culminating with Senate testimony.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD: Defensive below 1.0600 amid ECB news, cautious mood

EUR/USD: Defensive below 1.0600 amid ECB news, cautious mood

EUR/USD is under pressure below 1.0600, as the US dollar finds its feet amid a cautious market mood. The euro shrugs off the latest report, citing that the ECB may unveil a new bond-buying scheme to cap yields/spreads in July. ECB-speak, US data awaited. 

EUR/USD News

GBP/USD eases towards 1.2250 as USD attempts a bounce

GBP/USD eases towards 1.2250 as USD attempts a bounce

GBP/USD is falling towards 1.2250, extending a sluggish start to the week. The pair retreats amid a renewed uptick seen in the US dollar, as risk-off sentiment prevails. Recent negative Brexit and UK political news remain a drag on the pound. US data eyed. 

GBP/USD News

Gold sticks to gains near $1,825, upside potential seems limited

Gold sticks to gains near $1,825, upside potential seems limited

Gold attracted some dip-buying on Tuesday and reversed a part of the overnight sharp retracement slide from the very important 200-day SMA. Gold held on to its modest gains through the early European session and was last seen trading above the $1,825 level.

Gold News

LUNA 2.0 price is primed for 60% rally

LUNA 2.0 price is primed for 60% rally

LUNA price breached the range it was trading in and crashed violently in June. However, buyers seem to be making a comeback, suggesting that a recovery rally is in effect.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures