EUR / USD. On the horizon, the mark of 1.1250
The Turkish “crisis epic” continues to gain momentum. For many weeks, this problem was of a local nature and did not affect the currency market on the scale that affects now. But with the “light hand” of the American press, traders gave in to panic, as the market had a reasonable idea that the metastases of the Turkish crisis would pose not only the European economy, but, possibly, the world economy. Now, the central theme of the financial markets is Turkey.
From 4.9 to 6.9, so rapidly the Turkish lira depreciated against the dollar during the two weeks of August. Today, the decline in the Turkish currency has slowed down, only at the expense of the statement made by the Central Bank of the country. The regulator promised to support the banking sector in the form of providing liquidity and “other support measures”. However, in the opinion of an overwhelming number of experts, such rhetoric will keep the growth of the pair USD / TRY only for a while, the sounded measures look too soft relative to the current situation. According to many economists, the Turkish Central Bank needs to immediately raise the rate by 500-600 points at once, only such “shock therapy” could stop the economic crisis.
However, according to other experts, the Turkish economy will not help and the aggressive rate hike. The collapsed lira provoked a number of problems, inflation jumped to almost 16%, unemployment, by 12%, and the budget deficit is 48 billion lira. Such a rapidly changing situation affected the ability of the Turks to pay, the number of people who did not pay off their debts on credit cards, has grown by almost half a million for six months, and in general, the debts on loans already have almost 3.5 million people. The volume of the Central Bank’s net reserves declined to $ 20 billion, while the external debt is more than three hundred billion dollars. The current account deficit (almost $ 60 billion) suggests that the country earns less than it spends. And given the dynamics of economic indicators, this trend can be catastrophic.
The only panacea is external assistance, but here, Turkey can face big problems. Experts believe that Ankara will have to apply to the IMF for a loan. According to various estimates, the Turks will need an amount exceeding $ 200 billion. And here, it should be noted that the US share in the International Monetary Fund is 17%, and in the World Bank, 20%. This circumstance will allow blocking the IMF decision on assistance to the Turks. According to the regulations of the Fund, a positive solution is provided “at least 85 percent of the vote,” while only 15 percent are required for blocking. Therefore, there is no need to build illusions, the US has long been using the IMF as an instrument of foreign policy, and this case will not be an exception.
By the way, not so long ago, members of the US Senate have already introduced a bill that involves restricting Turkey to loans from international financial institutions. Therefore, if Ankara appeals to the IMF, it will encounter strong resistance. Based on this fact, the probability of refusing assistance is very high.
And Washington, in its turn, just started to “tighten the screws” to Ankara. The personal sanctions against the two Turkish ministers turned out to be “flowers”, while “berries” are still ahead. At the end of last week, the US president approved an increase in the customs duty on steel and aluminum from Turkey in half, now the duty on aluminum has increased by 20%, and steel, by 50%. And, according to available information, this step is also not the last from the Americans. The White House is considering the option of eliminating tax benefits that apply to Turkey’s products for a total of $ 1.6 billion. A spokesman for US Trade Representative Robert Lighthizer confirmed this information, saying “a revision of the duty-free import of Turkish products to the US market”.
The search for a compromise in this situation was not crowned with success. Actually, the demands of the American side are unambiguous and not subject to discussion: The states demand to release their citizen from prison, without meeting any counter demands. This step by Turkey will lead to normalization of relations between the countries, however, Turkish President Erdogan takes a principled position in this issue. According to rumors, Washington gave the time to Ankara until Wednesday, that is, until August 15. If until this moment the demands of the States are not met, the flywheel of the sanctioning pressure will be unleashed with renewed vigor.
The European currency has become a hostage to this situation. If the Turkish crisis continues to gain momentum, the largest banks in Europe will suffer, which will affect the overall financial stability in the euro area. In addition, if the situation worsens by the end of the year, the ECB can extend the incentive program, automatically postponing consideration of the issue of raising the rate for an indefinite period. Such prospects put strong pressure on the euro, not only in tandem with the dollar, and throughout the market.
Therefore, the immediate prospects for the euro depending on the resolution of the Turkish problem. If Ankara makes concessions, traders will be optimistic about this signal. Otherwise, the EUR / USD dive will continue.
The technical picture of USD / JPY testifies to the unequivocal priority of the downward movement. About it say almost all the “older” timeframes – H4, D1, and W1. So, on the weekly chart, the pair is on the bottom line of the Bollinger Bands indicator and under the cloud Kumo, and the indicator Ichimoku Kinko Hyo formed a bearish signal “Line Parade”. The resistance level is 1.1525, this is the lower boundary of the cloud Kumo (on W1), which coincides with the line Tenkan-sen. But the support level is the price of 1.1250, this is the bottom line of Bollinger Bands on the weekly chart. It is the 1.1250 mark that is the main southern target of the downward movement.