European stock markets extend their losses Friday on the back of the Turkish lira devaluation which fuelled concerns about a potential crisis in the regional banking sector. The ECB expressed concerns over the lenders’ exposure to Turkey which exceeds $130 billion. As a result, bank shared lead the way lower today, with two giants - UniCredit and BNP Paribas - sank 4 per cent. Meanwhile, Britain’s FTSE 100 loses 0.77 per cent to 7,682, France’s CAC 40 sheds 1.46 per cent to 5,422, while German DAX 30 declines by 1.88 per cent to 12,435. US stock index futures point to a lower open amid a global equity rout fueled by the currency crisis in Turkey.
Core US CPI jumped the most since 2008 last month, to 2.4 percent from 2.3 percent in June. The report pointed to a steady rise in inflation pressures, which suggests the Fed will continue to gradually raise interest rates. Following a bullish release, the greenback jumped across the board and refreshed long-term highs against the European currencies. The buck is also supported by the persistent US-China trade jitters, as well as geopolitical concerns amid US sanctions against Iran, Turkey and Russia.
The EURUSD pair, which eroded the important 1.15 support easily earlier in the day, refreshed more than one-year low of 1.1414. So the next bearish target is the 1.14 figure which if fails to hold will open the way to 1.13. In the short-term, the euro needs to regain the 20-hour moving average close to the 1.15 level in order to avoid another sell-off. However, despite the oversold conditions, the single currency remains vulnerable to further losses and looks unattractive for buyer amid growing concerns in the regional banking sector.
GBPUSD tried to lift off lows as the UK GDP came in line with expectations in Q2, at 0.4% Q/Q, while the manufacturing output rose 0.4% m/m in June - slightly more than expected. But a new wave of risk-off sentiment amid the economic downturn in Turkey lifted safe havens including the US dollar and sent the pair to fresh lows in the 1.2722 area. Now, when the pound has lost the 1.28 mark, the bearish sentiment has intensified, and any meaningful recovery looks unlikely so far. The increasing buying pressure on the greenback coupled with concerns over a potential ‘hard Brexit’ outcome make the overall picture around sterling extremely negative.
USDJPY declined to two-week low in the 110.60 region. Risk aversion fuelled yen demand and pushed the price lower. However, the general bullish sentiment around the greenback has limited the downside pressure on the price. So as the dust settles, the pair will likely get back above the 111.00 figure and will target the 14- and 20-DMAs at 111.20 and 111.55, respectively.
Brent crude has been recovering from three-week lows in the $71.40 area reached earlier in the day. The price has reached the $72.50 region and so far struggles to regain the $73 figure. There are still two conflicting factors in the market affecting the overall investor sentiment these days. These are escalating trade tensions between the US and China that are keeping a lid on prices, and concerns over the consequences from the renewed US sanctions against Iran amid a threat of tightening supplies which underpins the market. As long as US-China the trade jitters remain in market focus, the upside pressure on Brent will be limited.
Nathan Lambert, Head of Global FX Analytical Department