Fundamental Analysis

May Strengthens Her Hand | Turkish Spat Continues | Catalonian Crisis Could Explode

Typography

Asian equities have outperformed the US stock markets this year
Theresa May has the support of her party and from the public
The weaknesses in the dollar could be a short-term thing
Prime Minister Rajoy would have no choice but to use the force to restore the order
The US is blaming Turkey for the recent crisis

Investors are increasingly optimistic about global stocks and this has pushed the global equity markets near a record high. Traders are constantly looking for a value play. Although Asian equities have outperformed the US stock markets this year, they are still relatively cheaper. Hence they may be more attractive. The German trade balance data released today showed further improvement and this is keeping the euro-dollar pair in the positive territory.

The bettering for Sterling comes to an end after traders realised that Prime Minister Theresa May has the support of her party and from the public. After every setback, she tends to make a comeback and this tells you something about her strong character. The tactic which won her this support was by highlighting that the UK could leave the EU without any Brexit deal. But the question remains how long it will take her to change her stance and until when this support will last? Moreover, Theresa May presented a different story to her party leaders; the EU leaders are keen to discuss and negotiate a deal with Britain. Her contrasting views reappeared when she told business leaders that the transition period could last for two years and they should curve up a strategy accordingly. These mixed messages would surely keep any upward move capped for the currency.

The mighty Dollar is experiencing some weakness against a basket of currencies ahead of the FOMC minutes (due this week). The weaknesses in the dollar could be a short-term thing and this is purely because the economic numbers have been strong despite the strong influence of the hurricane misery. The broader picture for the US economic health is improving somewhat and therefore, we do anticipate that there might be some more juice left for the dollar rally. The inflation data is also showing signs of life and this supports the Fed Hawkish stance. For instance, the ISM paid prices number not only confirmed the above argument but the reading came in at the strongest level since 2011. The average hourly number, the Fed’s favourite gauge for the labour market strength, experienced the largest jump since 2009. This pretty much confirms that the upcoming FOMC minutes could be on the hawkish side.

Over in Europe, just when you thought that the Catalonian crisis is over, things have taken a turn for the worse. Carles Puigdedemont could escalate the tensions during his address to Spanish leaders. A gradual independence has been dubbed by him so far and if he does make that announcement in the parliament it would mean more adverse pressure on the Spanish markets. Prime Minister Rajoy would have no choice but to use the force to restore the order. Investors’ sentiment is already adverse and foreign money is taking a step back as several companies have moved their operation.

The geopolitical tensions have faded, it is only calm before the storm. The US is blaming Turkey for the recent crisis and demanding an explanation for the arrest of the two employees at the American Embassy in Turkey. Both countries are NATO allies and any further rift between the two would only mean more trouble on the global investment stage. The Turkish Lira was the worst currency among emerging market currencies yesterday.Today it is no longer the worst but the third underperforming currency among emerging market currencies. The precious metal is still well above its recent low of $1260 and the technicals are suggesting that we could see more upside move for the metal.

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