Turkish Lira Continues to Slide Leading to Contagion in the World Markets

The dollar rose while the global stocks market fell today as problems in Turkey continued. Last week, the Trump administration announced fresh sanctions on two Turkish ministers in protest of a jailed American pastor. He also added fresh tariffs on Turkish steel and aluminium. These tariffs coupled with the central bank’s decision to leave interest rates low despite the high inflation rate has led to the collapse of the Turkish Lira, which has lost 70% of its value. This decline has mostly affected the European markets because of the trade exposure. Turkey is the EU’s fourth largest export market while the EU is the biggest market for Turkish goods.

The safe-haven assets rose today as traders moved their capital to them. The Japanese yen rose by 0.55% against the dollar while the euro fell by almost 40 basis points against the Swiss Franc. Gold was the outlier as its price dropped to the lowest level since March 2017. Its decline was mostly because of the stronger dollar, which rose by more than 10 basis points.

The euro fell against the dollar mostly because of the crisis in Turkey. The drop came as traders wait for key data from the European Union tomorrow. From Germany, we will get the ZEW economic sentiment for August. This will gauge the feelings of business leaders on the economy on trade. Traders expect the sentiment to be at negative 20.7. The region will also release the GDP numbers. Traders expect the second quarter GDP to grow at 2.1% in line with the first reading.

EUR/USD

The EUR/USD pair dropped to an intraday low of 1.1355, which is the lowest level since June last year. The decline on the pair started in February this year when the pair reached a high of 1.2555. The current level is lower than the 200 and 100-day Exponential Moving Averages. On the daily chart below, the pair’s RSI is close to the oversold level. Still, the pair could continue moving lower as the crisis in Turkey continues.

XAU/USD

The XAU/USD pair dropped below the important support level of $1200 today. This was the lowest level since March last year. It is now trading at the $1200, which is below the 100 and 200-day moving average. Its RSI is closer to the oversold level while the MACD is showing signs of further declines. In the short term, the pair is likely to continue trading within this range as it tries to find direction. If the dollar strength holds, it is likely to continue moving lower.

EUR/CHF

The EUR/CHF pair started falling in May this year. It has fallen from a high of 1.2000 and today, it reached an intraday low of 1.1285, which is the lowest level since July last year. The pair is trading below all the major moving averages and on the daily chart, its RSI is currently at 24. This is an indication that while the downward movement could continue, it is also possible for the pair to have a slight pullback.