Markets are on the rise on Thursday morning on the news about the U.S.-China trade talks later this month. As a result, Asian bourses have stabilized: MSCI adds 0.3% after a decrease of 1.1% on Wednesday. The Chinese offshore yuan adds about 1% on Thursday morning and trades at 6.875 after reaching 18-month lows to the dollar overnight. The central bank of Turkey decided not to raise the key rates but had limited the possibility of speculative attack on lira. As a result, its course rose by 19% to 5.85 per dollar against the 7.24 at the start of trading on Monday.
Thus, the markets have received hope for stabilization of two most sensitive issues for the latest days, on Turkey and China. In both cases, the situation is far from being resolved, but the attention of the authorities to the topic and attempts to stabilize the situation, deter markets from further decline, allowing speculators to fix a part of the profits from the recent strong moves.
The mood for profit-taking has also spreads to major currency pairs. The dollar index has decreased by 0.6% from the highs of the Wednesday and is trading near 96.30. The EUR/USD pair gained on support on decline to 1.13, adding almost a figure (1 cent) to the lows of the previous day, and is trading at 1.14 before Europe open.
In case of development of a rollback in a pair it is necessary to pay attention to dynamics near 1.15 which until recently was important support level. Strong growth above this mark gives signal about the serious intentions of the Euro-bulls and can become a testament to the end of the impulsive sale-off. However, by now we could hardly talk about serious chances to reverse in the euro dynamics.
Still, there is a lot of evidence of the growing strength of the dollar. The volatility of the Turkish lira, although capable of worsening the positions of European banks, affecting on lending and possibly containing the ECB on the way to normalize rates.
Moreover, we have strong statistics from the United States. Yesterday’s retail sales were marked by an increase of 0.5% m/m and by 6.4% y/y, which significantly surpasses the rate of price growth, which is 2.9% y/y.
Brent Crude Oil fell on Wednesday to $70.50, updating the 4-month lows, but later have stabilized around the $71.30. Oil fell by 2.3% yesterday after reports of unexpected growth in inventories and production in the US last week. Crude oil inventories declined by 11% to last year’s levels, but it is almost half the rate of March, when the fall to the last year was 20.6%.
Despite the short-term stabilization of the price, it is worth noting the dominance of the downward trend. An important technical indicator for observation is the line of 200-day average, which passes near $70 per barrel. Overcoming this mark can serve as a signal to a prolonged sale.
Alexander Kuptsikevich, the FxPro Analyst