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Collapse of stock exchanges still pushes euro upward

Collapse of stock exchanges still pushes euro upward
Present events haven't met our expectations that August will be boring and slow-moving. For two weeks already the market has been shaking. The last day of the week passed under the sign of collapse in stock markets. During the day DJA fell by the maximum value for last five years. Several factors, which facilitated such development of events, coincided. During last week series of economic indicators showed that Chinese economy is slowing down and yuan’s devaluation a week earlier made investors be alert. Besides, forecasts on the world economy as a whole were revised downward, what provoked decrease of resource prices, including oil, which renewed annual minimums on Friday. The trigger was aggravation of the situation on the Korean peninsula, which provoked artillery fire of South by North. After what something similar to panic started in stock exchanges. It should be mentioned that these events had different influence on the exchange market. Risk avoidance had the most positive influence on euro as fund currency and on Japanese currency as a “shelter-currency” in this situation. In their turn< trade currencies (Australian and Canadian dollars) stayed under pressure against the background of fall in resource prices. Dollar fell sharply against currency basket and there is a threat of formation of middle-term descending trend for it.

The last work week of the month will be crucial for determination of middle-term prospects of the exchange market. Last week the common currency made a serious apply for continued growth with the risk of renewed maximums of May. If dollar can’t oppose something to this movement and change current technical picture seriously till the end of the month, then continuation of growth trend will be under question for it. This week there will be a lot of American statistics, which can influence players’ activity. Considering main ones, it is reports on housing, durable goods orders, the second evaluation of GDP for the 2nd quarter. It should be said that according to forecasts, the data can show quite good results. In this case, market’s moods can change sharply, strengthening proponents of increase in rates in September. Still, taking into account rare coincidence of forecasts with the reality, it can be talked about only on the fact. For euro the main growth factor was collapse of stock exchanges during the last days of previous week. This factor can reach the limit this week. South and North Koreas have started negotiating, what will decrease the threat of military clash and may calm stock markets. There is also a lot of economic statistics in the Eurozone – the focus is on the second evaluation of German GDP for the 2nd quarter, IFO report on moods in business environment, retail sale and preliminary inflation for August in some European countries. And if German GDP is still quite all right (in contrast to France), preliminary evaluation is unlikely to be decreased, then there are some problems with the rest of indicators. Probably, inflation will start to slow down again against background of fall in resource prices, what will be a restraining factor on the threshold of ECB session next week. It will be clear which arguments will eventually outweigh only in the end of the month. Now dollar is under considerable pressure, what may provoke mass liquidation of long positions.

Speaking of local data, we’d like to highlight Japanese reports on inflation and second evaluation of British GDP for the 2nd quarter. Still, they will hardly provoke serious changes, the reaction will be short-term. Pound is in the most complicated situation. Stubborn unwillingness to grow against the background of euro’s movement during last days makes it vulnerable to negative statistics. If evaluation of GDP is decreased, then pound may go downward sharply.

This week has started with another collapse of stock exchanges, what reflects the exchange market correspondingly – euro and yen go upward, trade currencies – downward, pound is waiting. This scenario is similar to the end of last week. Driving force of this phenomenon was panic and crowd effect, what leads to mass work of stops. We should mention that such panic moods don’t live for long and end rapidly.


Trade tactics:

Friday was unlucky for us. We opened euro’s short position for 1.1350, this morning it was closed on stop for 1.1450. We underestimated power of panic moods in the market. Technical picture in EURUSD pair gives signals of threat of descending trend’s reversal, but it is too early to make final conclusions. Now it’d better to await the end of panic out of the market.


Any opinions, advice, news, research, analyses, prices or any other information presented on this webpage is provided as general market commentary and does not constitute investment advice. "Vector Securities" shall not be liable for any loss, including loss of profit, which may arise directly or indirectly from the use of this information.

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