Piotr Matys EM FX Strategist at Rabobank, notes that the CEEMEA currencies remain driven by headlines about trade spat between the US and China.
Key Quotes
“While there was a brief respite yesterday in the afternoon following a report that President Trump abandoned plans to impose the harshest measures on Chinese investment in the US, it proved very short-lived.”
“Comments from White House economic advisor Kudlow implied that the US President has no intentions of softening his hard stance on China and the sell-off resumed.”
“USD/CNY is another important driving factor for global sentiment. The sharp rise from around 6.40 to almost 6.63 fuelled market speculations that China may use a weaker yuan as a weapon in its trade war with the US. However, momentum indicators are already stretched as a result of the parabolic move higher in USD/CNY since the middle of June.”
“Further gains could be therefore capped below the resistance area around the Fibonacci 61.8% retracement at 6.6973. Should USD/CNY struggle to move beyond the 6.70 level in the coming days, the CEEMEA currencies should regain composure.”
“A potential relief rally in the CEEMEAs (assuming that the selling pressure on Chinese stocks and the yuan eases in the short-term) could be paradoxically led by the Turkish lira.”
“As soon as the external backdrop improves, USD/TRY is likely to lean lower again towards the support area around 4.45.”
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