A rapidly appreciating US Dollar has sent shockwaves through a previously tranquil market. The extenuation of an extant rally within the Dollar has been precipitated by the intensification of a trade war between the US, China and increasingly Russia. Coupled with a sustained and considerable tightening of monetary policy, with increasingly hawkish comments coming in from governmental officials, the trade war has been intense enough in order to propel the Dollar below the psychological levels of 1.28 against the Pound and even 1.15 against the Euro. Alongside the breaches of numerous psychological levels, the Dollar has also caught enough of a bid to propel it through numerous strong technical resistance levels. The Euro has seen idiosyncratic risk injected from the fiscal negotiations in Italy. Whilst Italian bond yields have taken a goliath wallop, the Euro has remained moderately unscathed. Overnight, traders have begun to price in the risk presented by the exposure of European banks to the tumult in Tukey, facilitating the unprecedented fall in the EURUSD cross. Concomitant with the pressure mounting behind the Lira, emerging market currencies have sold off in force. In particular, the performance of the Rand has been poor, breaking through 14 against the Dollar and briefly 18 against the Pound.
Discussion and Analysis by Charles Porter