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Market Outlook: Turkey takes the gloves off

Central Bank slashes 425 basis points
July 26, 2019

Brand new head of the Central Bank of the Republic of Turkey, picked by President Erdogan himself, managed the biggest key policy rate cut in at least 17 years, according to Bloomberg. Murat Uysal managed to slice 425 basis points off the key rate, the first rate cut since 2016, taking it to 19.75 per cent yesterday. The move was something the President had suggested earlier this month, as he believes that high interest rates cause rather than slow inflation. He fired the previous central bank head because he would not cooperate with this unorthodox monetary policy.

Data published yesterday from Germany’s respected IFO Institute showed that manufacturing sector confidence slumped in July. Its president Clemens Fuest said, ‘’in manufacturing, the business climate indicator is in free-fall. An improvement in the situation is not expected for the time being, because the entrepreneurs are more pessimistic about the coming six months.’’ July’s Business Expectations dropped to 92.2 from a downwardly-revised 94.0 reading in June; this is the lowest reading in exactly a decade. It also backs up anecdotal evidence that factory workers in Germany are being put on shortened hours.

DAX 30

A far more serious rejection from the 12600 level yesterday, with a sizeable bearish engulfing candle, as German data gets worse and some begin to realise that the ECB has already done ‘whatever it takes’ and they’re now just pushing on a string.

 

SHORT TERM TRADER: New short at 12360; stop well above 12600. Target 12000.

 

POSITION TAKER:  Square.

FTSE 100

Yesterday saw this month’s lowest daily close, but it was only just below 7500. Might add to short position on tonight’s close.

 

SHORT TERM TRADER:   Short at 7550; stop above 7600. Target 7200.

 

POSITION TAKER:  Short at 7515; stop above 7625. Target 7100.

S&P 500

Not especially overbought as we hover at the 3000 level. Note that some commentators are pointing to the weakness of the US dollar as investors factor in an about-turn to Fed policy and the likelihood of rate cuts. This is categorically incorrect; the US dollar has gained against all currencies this year with the exception of the Brazilian real and the Russian rouble.

 

SHORT TERM TRADER:  Square.

 

POSITION TAKER:   Square.

BRITISH POUND/US DOLLAR

Combative comments from Boris Johnson yesterday sent chief EU negotiator Michel Barnier rushing to his laptop, dashing out urgent emails to all 27 member states, urging them to ‘remain calm’ and show ‘solidarity and unity’. Some are suggesting he’s worried that the Boris camp are angling so that blame for a no-deal UK exit will be blamed on the EU and on Barnier specifically.

 

SHORT TERM TRADER:  Long at 1.2525; stop below 1.2385. Target 1.2750.

 

POSITION TAKER:  New little long at 1.2500; stop below 1.2350. Target 1.2775.

EURO/US DOLLAR

Oversold with a very big dragonfly doji yesterday shows how the euro at current levels is on very shaky ground. The car industry continues to struggle, today Renault reporting that revenue was likely to decline this year. In the first half to June 2019 revenue fell by more than half to €979 million, Reuters reports.

 

SHORT TERM TRADER:  Square.

 

POSITION TAKER:  Square.

GOLD

Still holding in the middle of the range of the last month. Overnight armed men in federal police uniforms stole 750 kilos of gold and other precious metals from the main Sao Paulo airport. The cargo was destined for New York and Zurich. One wonders who was doing the exporting.

                            

SHORT TERM TRADER:  Square.

 

POSITION TAKER:  Square.

Nicole Elliott is a long-standing member and Fellow of the Society of Technical Analysts and has taken over the IC’s trading coverage.  She is regularly interviewed and quoted by the financial media, is a conference speaker, and author of several books on charting.