Forex news from the European trading session - 13 August 2018
Headlines:
- EU says that it is aware of potential impact on European banks from Turkey situation
- Iran leader Khamenei refuses Trump's offer for direct talks
- Bankers say CBRT decided not to fund today due to unhealthy price formations
- Russia says retaliatory sanctions against US are not firm just yet
- CBRT opts out of opening 1-week repo auction
- Italy July final CPI +0.3% vs +0.2% m/m prior
- SNB total sight deposits w.e. 10 August CHF 576.1 bn vs CHF 575.9 bn prior
- Bank stocks hit hard as European equities open in the red
- BTPs struggle as Turkey sours risk sentiment
- CBRT cuts lira required reserves by 250 bps for all maturities
- Turkish central bank says banks are to be provided all the liquidity they need
- Ex-BOJ member says that central bank should abandon negative rates immediately
Markets:
- JPY leads, AUD lags on the day
- European equities are all lower
- Gold down 0.82% to $1,201.83
- WTI down 0.33% to $67.41
- US 10-year yields down 0.7 bps to 2.866%
- Bitcoin up 4.50% to $6,470
The only relevant headlines of note came from Turkey itself with the central bank announcing support measures in an attempt to stymie the lira's decline. However, none of those measures involve a rate hike and relative to such a move the measures announced are very much on the mild side - as they serve to only add liquidity to a falling currency market.
USD/TRY was trading around 6.75 when the measures were announced and strengthened to 6.45 but as mentioned then, those measures aren't going to cut it and the pair moved back to 6.90 levels thereafter.
The CBRT stepped in (or should I say out) again later by choosing not to run its 1-week repo auction but that did little to halt the lira's decline. USD/TRY fell to just below 6.80 on the back of that but continues to trade between the 6.80 to 6.90 levels currently.
The fear of contagion arising from the situation in Turkey and the lira gave markets a risk-off flu that started in Asian trading and that spread to European trading as well. But the majority of the swings in currencies have already occurred in Asian trading.
The risk-off flows saw the yen stay ahead of the rest of the major bloc alongside the dollar and swissie, and the laggards for the day are the kiwi, euro, and aussie. And that did not change throughout the session.
Looking at individual currencies, EUR/USD started the session around 1.1380 levels before falling to a low of 1.1365 as safe haven currencies gained. But the pair moved back to the 1.1400 handle as risk bounced following the CBRT announcements, before moving back to trade around 1.1370-80 levels currently.
USD/JPY started the session at the lows around 110.10 levels before climbing higher on the back of the CBRT announcements. The pair moved towards 110.30 before trading around 110.20-30 levels for the rest of the session.
GBP/USD started the session around 1.2730-40 levels and stayed there before a pop higher mid-way through the session saw it climb to 1.2770. The pair settled around 1.2750-60 thereafter as the pop looks to be very much a flow-related move in the wake of thin liquidity.
USD/CAD and NZD/USD had more subdued sessions as both currency pairs traded at the lows in Asia before bouncing a little and holding around current ranges for the majority of the session. For USD/CAD, trading mainly stayed around 1.3140-60 while NZD/USD saw a range of 0.6570-90 throughout the session.
AUD/USD also saw a very similar session to the other commodity currencies with the pair trading around 0.7270-90 for the most part as the declines suffered were very much from early morning trades in Asia.
