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Eurozone Inflation Makes Another All-Time High

Published 08/31/2022, 10:21 AM
Updated 05/25/2022, 07:45 AM

Today the EU has confirmed that inflation in the Eurozone has again hit an all-time high across the 19 member states. inflation in the region increased by 9.1% Y/Y above previous estimates.

Many economists are considering whether this strengthens the case for the European Central Bank to consider a higher rate hike.

The Euro is performing well against most of its competitors other than the US Dollar. This is due to the recent hawkish stance by the Fed and the US's improved economic performance.

US Dollar Index - Technical View

The US Dollar Index is increasing in value after a slow start. Currently, the price is 0.29% higher than the market open, taking the index to 109.8. The index is at the highest price in the last 48 hours.

The US Dollar is likely to continue being influenced by the recent comments from the Federal Reserve until the next Consumer Price Index (CPI) announcement.

The Dollar may find support if the August figure indicates that inflation has not necessarily peaked. At the same time, a lower inflation figure may have investors feeling more relaxed. This is also likely to affect the US Stock Market.

Investors are also awaiting the release of this week’s nonfarm payrolls and Unemployment Rate. Both can create high levels of volatility but will not likely change the stance of the Fed’s monetary policy.

The Central Bank has indicated that the employment sector is robust and can slightly decline without causing an issue for the economy.

Turkish Lira - Technical View

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The USD/TRY continues to be one of the most shorted currencies as it has been since 2017. The currency has been influenced by multiple factors which generally have worked against the currency.

This includes political tensions, an unstable monetary policy, and hyperinflation. Turkey is currently the only European country experiencing hyperinflation, which lowers the currency’s purchasing power.USD/TRY price chart.

However, despite the currency continuing to decline, Turkish economic activity has recovered, according to the latest data.

According to the August report, the unemployment rate was 10.3%, down from 10.6% and much lower than before the summer months.

The volume of industrial production is stable: in annual terms, it amounted to 8.5%, much higher than the forecast of 6.7%.

Consumer confidence in the country's economy is also significant, and since mid-autumn 2020, the index has been steadily declining. The dynamics began to change in June this year when the indicator increased to 68.0 points.

This is most likely due to the strong fiscal policy support for the economy against the high level of inflation. The gross domestic product (GDP) amounted to 7.3% in the first quarter of the year and also inspired confidence in the long term. According to economists, the Turkish economy is the most stable for the rest of the year.

So why has the currency depreciated? The Turkish Central Bank is one of the only Banks to decrease its interest rate levels while facing hyperinflation. This has also resulted in the Turkish Lira losing purchasing power.

In addition, most citizens and foreign investors have decided to maintain their finances in Dollars rather than Liras. Lastly, many other central banks have lowered their exposure to the TRY. All the above have generally resulted in the currency declining and low confidence in the currency.

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NASDAQ - Technical View

The price of the NASDAQ forms a retracement during today’s pre-market session. The price of the index has increased by 0.60%. However, similar conditions have been experienced over the past three days before the downward trend continues.

NASDAQ 4-hour chart.

The price continues to remain within an Elliot Wave pattern, indicating pressure in the longer term. The index also continues to remain below moving averages and sentiment levels. Most traders believe the index will continue to decline but are cautiously trying to avoid short to medium-term retracements.

In the corporate segment, another letter from the lawyers of Elon Musk to the management of Twitter (NYSE:TWTR) was made public. The letter provided several reasons Mr. Musk has the right to refuse to purchase the social network.

In turn, lawsuits against the leadership of some states, initiated by Tesla (NASDAQ:TSLA), continue. According to the company's lawyers, the legislative framework introduced does not allow selling electric cars without using dealers' services, which hinders trade development. Louisiana was the first state which Tesla has officially filed a lawsuit against. 

Meanwhile, the upward correction continues in the domestic bond market, which, as previously explained, tends to pressure the stock market. The 10-year Treasury yield is 3.110%, up from 2.580% in the month. Higher yields may tempt stock investors to switch to Bonds under a restrictive monetary policy.

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