In the past weeks the market has made up and down like on a roller coaster and the last week was the same. This time, however, it was not because of macroeconomic news (apart from one or two) but because of political turmoil and terrorism.
Let’s see what has happened and what impact these news have had on the Forex market.
A week ago, in Nice, it took place an attack where nearly a hundred people have died because of a crazy truck driver.
The European markets were already weakened by the news of the Bank of England to leave rates unchanged, but the next day the news of what happened in Nice made the yield on ten-year German Bund back to trade above zero.
The pound closed the week with the best rally since 2009, thanks to the effect of Theresa May appointed as British Prime Minister. Even the dollar has regained strength scoring towards the yen the strongest weekly increase since February 1999.
Another event regards Turkey: after a failed military coup, the President Erdogan has reinforced the power of his government by proclaiming a state of emergency for three months and denying the civil rights of the Turks.
After the failed coup on Friday, the Turkish lira has gone mad: first it reacted losing about 5% and then it rebounded.
Today, however, the Turkish lira has touched new lows levels and has depreciated further against the US dollar and continues to fall.
As for the exchange rate between euro and Turkish lira, we notice how the medium-term trends that were all bearish, suddenly turned bullish.
This is quite understandable and normal; the news of a coup make operators divest their investments converting what made as liquid from Turkish Lira to Euro, and the exchange rate has jumped to the upside with an immediate devaluation of the Turkish currency.
Standard & Poor’s has also downgraded the rating of the country because of the uncertainties generated by the failed coup and the market has not anymore confidence in Ankara.
Analysts are worried about the possibility that Turkey, after the coup, has to face financial unpredictability that could damage the country’s economy and these concerns will cause severe consequences for the Turkish lira.
Moody’s also did not show an excess of optimism after the coup in Turkey. Earlier this week the agency has warned of wanting to downgrade Turkey’s rating because of the growing concerns about the political risks of the post-coup.
Let’s turn now to the only important market mover of the week: the meeting and rate decision from the European Central Bank.
The ECB announces its decision on interest rates after the meeting of 21 July 2016, the first after the referendum on Brexit.
The Council decided to leave interest rates unchanged, as expected by analysts. In detail: Interest Rate 0,0%; Deposit Rate -0,40%; Marginal rate 0,25%; Monthly QE € 80bn.
The euro-dollar exchange rate was little moved by the words of Draghi who have been faithful to the market expectations.
With the ECB meeting at the shoulders, which ended with nothing done, all eyes of traders and markets go to the meeting of the Federal Reserve on July, the 27th. Janet Yellen comments might suggest the timing of the next rise in interest rates.