US-China Trade talks and Turkish Lira

Market Trends - 23/08/2018

U.S and China negotiators are working on a plan to hold a new round of talks to stop a trade dispute. This could result in meetings between Chinese leader Xi Jinping and US President Donald Trump at a summit in November, according to Dow Jones. The US and China On Thursday announced low-level trade talks this month that they hope to resolve an escalating tariff war. A war that threatens to cut all trade between the world's two largest economies. The underlying destabilizing forces in this trade “dispute” is the unspoken though widely understood realization of where these matters lead.

It was a tumultuous week for the Turkish the lira. Went into meltdown on Monday when it hit a record low of 7.2 against the greenback. The panic spread also to other emerging economies creating a small domino effect. Turkey’s central bank pledge to provide liquidity to the banks and other measures, following the help from Qatar to provide $15 billion in loans to Turkey, and the measure that the finance minister promised to take helped calm nerves.

That didn't stop the fall of Turkish Lira as the Lira after a short recovery is now in a state of consolidation. We are of the opinion that the short term “correction” in the upward spiral of the USD & EURTRY is indeed temporary. Remember, the Turkish military has a long and well deserved history of throwing out regimes that are deemed harmful to the constitution of the state. There is not much more harm that the Sultan can engender than the utter devaluation of the currency and the reduction of a once promising and high growth economy to penury. Erdogan will yet reap what he sows.

The USDTRY fell from 7.2 to 6.68 and the recovery went up to 6.34. The Pair now is at 6.04 and we can clearly see that the pair is resting for the moment.

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