The dollar is trying to compensate for the loss of last week
Emerging markets last week, despite the weakening of the dollar yesterday, remained under pressure. In the second half of the week resumed attacks on the Turkish Lira, but the lows were not rewritten. The anti-hero of the currency market proved to Argentine pesos. Also poorly kept Indian rupee, reached historical low, putting pressure on precious metals. Cooling risk appetite and concerns of developing markets allowed the dollar index to develop a minor upward correction, after he has established technical lows.
The end of the week was marked by the struggle for optional level 1.16 EUR/USD, the week closed near this level, and by the end of the week the main currency pair decreased slightly, in line with our expectations correction.The British currency has justified our optimism, jumped to the positive political news on the progress of negotiations on Brexit, making our goal of 1.3. On the dynamics of the pound has a positive impact overload shorts. USD/JPY is also in line with our expectations, stood for a week in the outset.
Mid-term we remain moderately bearish view on the dollar, noting that the process of reducing the extreme amount of speculative long in the U.S. currency, which began last week, has all chances to continue, then, as a trading idea positive for the Euro the prospects of the tapering of monetary stimulus in the Eurozone is only just beginning to recoup the market. However, the situation in emerging markets remains uncertain, and the dollar could be supported if panic selling on the weaker markets will resume. In the short term, we anticipate continuation of upward correction of the dollar and the preservation of high volatility.
On the background of Turkish risk, projected on the European financial sector, and through this – on the debt market europefree, there is a strengthening Swiss franc, which acts as a regional refuge. EUR/CHF’s decline may continue, if Turkey does not appear more signs of financial stabilization.
USD/RUB the whole week remained under pressure, but at the end of the week finally responded to the increased oil. The week was closed around the levels it started.
On the one hand puts pressure on the ruble of the sanctions of the topic, fueled by the escalation around Syria. The US and its allies blamed Assad in preparation for the attack using chemical weapons. Russian General staff, in turn, said that the provocation was being prepared. Located in the region of US forces and their allies on the one hand, and Russia on the other hand, brought into a state of high alert. Last weekend came the news that the Israeli air force attacked a military base near Damascus.
On the other hand, Brent/RUB is already obscenely expensive, attempting to go above 5300. Of course, in the spring of this year here there is a strong bullish trend, but in recent weeks, the weakening of the ruble was too aggressive. Previously, we suggested that USD/RUB needs to stay in the range 63-68, and so far this idea is justified. On Friday, despite the growth of tension around Syria, was observed strengthening of the ruble, and if the degree of tension around Syria, at least not to increase, the strengthening of the ruble may continue. We do not expect, however, that the first wave of consolidation will be strong. Oil is showing signs of short term weakness, so great strides this week the ruble will not develop.
The stock market
S&P 500 sets new records, along with strong oil, it provides positive support to the Russian stock market. On the background of the foreign exchange market the stock, as we have noted, looks much. A weak ruble is good for exporters, while securities of the savings Bank have retained last week’s levels in the area 170, which indicates a strengthening of the overall market and that a massive exit of residents from the paper has stalled.
Overall, last week for Russian stocks has been volatile, but positive, in line with our expectations upside correction. The correction will try to develop this week, but will face technical difficulties while trying to break up 1095 for RS. This is a strong resistance. Before the August market failure in those weeks when the index has broken through this level down, is closed. If the index will fail again to gain a foothold above, it will open a significant space for recovery, including closing the April gap above 1200, however, the volatility in emerging markets must go down. This week we do not expect them to hand.