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Turkey on the Brink

Escalating Political and Economic Crises Agitate Turkish Lira

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Turkey continues to be an economic and political hotspot as growing fears about the future of the nation have seen the Lira tumble to record lows amid the government’s inability to form a coalition coupled with rising refugee problems and growing conflicts on the Syrian and Iraq borders.

Lira Limps Along

The Turkish Lira ranks amongst the worst performing currencies of 2015 as the most recent election saw a fragmented political process unable to form a ruling coalition. A breakdown in talks between incumbent Erdogan of the AKP party and Kurdish HDP party have led to a surge in violence between the two groups just as Turkey takes the battle to ISIS militants across the border. However, the political insecurity has translated broadly to a net negative situation for foreign investors that are increasingly concerned about the outlook. Aside from the weak political outlook, the Turkish economy remains in a state of stagflation, meaning a high rate of unemployment augmented by high inflation. After the Lira hit record lows yesterday, USDTRY continues to march higher against news of curfews in certain Turkish cities and expectations of further bloodshed as political parties battle for control.

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Australia Content With Rates

In the meeting minutes released overnight, the Reserve Bank of Australia defended its strategy of keeping rates on hold for the third straight month after cutting rates by 50 basis points since the beginning of the year to a record low 2.00%. At this point, policymakers are not concerned with weakening the Australian dollar by dropping rates further, expecting that recent moves are more in line with the downshift in commodity prices coupled with the possibility that AUD will depreciate further on the back of a stronger US dollar. This is largely dependent on the Federal Reserve and its ability to raise interest rates down the road, but the bias of the RBA remains mostly dovish as conditions might merit further rate cuts down the road. While the kneejerk reaction in AUDUSD was to the upside, the Australian dollar has since fallen sharply, retreating approximately 40 pips

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US Manufacturing Woes Mount

The New York Empire State Manufacturing Index released yesterday fell to the lowest level since 2009, plunging from 3.86 to -14.92 as a sharp contraction in new orders and shipments dented the outlook. Manufacturing has been especially weak amid the uptick in the US dollar which has crushed the export economy. The employment component of the index also disappointed with the number of hours worked and aggregate employees tumbling. Although some shipping indices have managed to rebound, namely the Baltic Dry Shipping Index, others show that global trade momentum continues to decelerate as emphasized by the recent move by China to devalue its own currency. Although commodities, namely energy and non-precious metals continue to weaken, equities are shrugging off the data, led by the gain in Nasdaq Futures which posted substantial gains during yesterday’s cash equity session.

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USDJPY Ascending Triangle Technical Setup

The US dollar has managed to stage a comeback versus peers despite the prevailing negative economic data as other developed peers encounter different problems. Japan specifically suffered a major setback after GDP numbers released earlier in the week showed that monetary stimulus was not accomplishing the intended impact with annualized GDP printing in contractionary territory. The Yen did not respond positively, giving up ground as a result. USDJPY is currently consolidating between a near-term uptrend line and horizontal resistance at 124.58, forming an ascending triangle pattern. Due to the pattern’s bullish bias, should USDJPY rise above the key resistance level, it would be indicative of a triangle-based upside breakout. A move below the uptrend line would signal a breakdown in the pattern and a potential downside reversal.

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