Fundamental Analysis

Strong German Data Supports European Markets | Turkish Lira In Turmoil

Typography

German August manufacturing output increased 3.2%
The business activity in China still grew but the rate of the growth was the slowest in nearly 21 months
The Turkish Lira plunged to a record low against its basket of currencies.

European markets are trading higher on the back of more encouraging economic data from the biggest economy in the Eurozone. German August manufacturing output increased 3.2% compared to the last month. This is surely positive news for the ECB, however, the data hasn’t produced any meaningful colour for the Euro-dollar pair. The pair continues to trade near the lows of the day (low 1.17418) and a break of 1.17 would imply more selling pressure. What pushed the euro lower was the German August construction output which fell 1.2% from its previous month.

As for Asia., the Chinese economic data released overnight was clearly lacklustre but investors didn’t pay too much attention to the number. The business activity in China still grew but the rate of the growth was the slowest in nearly 21 months. The reason behind this was mainly due to the dull performance of new businesses which has cooled off. The Caxin/ Markit services purchasing manager index printed the reading of 50.6. A reading above 50 is associated with expansion. The index published its three month high of 52 during the month of August. Although investors have largely ignored this week’s number. The threat to the slower growth and lower expansion have become stronger and it would become a major headache for the investors.

In terms of currencies, it is the Turkish Lira against the US dollar pair which gathered a lot of attention among investors. The geopolitical tension was the reason which pushed the Lira close to its all-time low (against the dollar). The US suspended immigration visa for the Turkish citizens and Turkey did the same for the US citizens. The Turkish Lira plunged to a record low against its basket of currencies.

Over in the UK, Theresa May would be busy in reshuffling her cabinet and her party leaders want her to show courage by firing Johnson Boris out of his position. May’s authority and her command within the party has been under a major question. Her power has been eroding and her last speech to conservative leaders was not nothing short of a disaster. So far she has faced nothing but failure to start the negotiation process with Brussels. The clock is ticking as the UK has only two years to have a deal. It is expected that she is going to tell her party leaders that she has offered generous terms to European leaders and now it is up to them to accept the offer.

In geopolitics tensions, President Trump likes to keep the tensions high and he threatened North Korea over the weekend with his tweet by saying “only thing will work”. If the US goes to war with North Korea, it will be alone only because no other country is backing the move yet. This would trigger a risk-off trade. This has pushed the price of gold well above its recent low of 1260.

Back in Spain, a senior leader from the Catalanian administration has invited Spain to initiate the talk process again. We do expect this development to take priority because Catalonia leaving Spain simply implies more challenges for the whole of Europe. We do expect the Spanish Prime Minister to take this opportunity to de-escalate the unnecessary tension.

Author: ThinkMarketsWebsite: https://www.thinkmarkets.com/
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