Issues in the Emerging Market Space were Mitigated on Tuesday
Issues in the Emerging Market space were somewhat mitigated on Tuesday after Turkey in a dramatic move altered their interest rates. The robust increase in rates by the Turkish central bank helped underpin not only Turkish lira, but emerging markets, and risk assets more broadly. At the end of last week and the very start of this week, many were concerned about a US tapering and China wealth management product failure was to trigger an emerging market crisis. The rate hikes in India and Turkey; amidst signs that large maturity of wealth management products in China this week may not be as disruptive as feared, has helped stabilize the global capital markets.
The headlines initial exaggerated the magnitude of Turkey’s move driving up riskier assets within the currency and equity markets. An important point that is missed in much of the coverage is that while rates were hiked between 425 and 550 basis points, the rate at which funding will be done has moved from 7.75 to 10.00%.
The FOMC statement is which is scheduled to be released at 18GMT, was the focus for market participants Wednesday. The Fed continued to remove 10 billion in bonds reducing the QE program to 65 billion per month. The Fed’s economic assessment saw some headwinds at the start of the year, like the poor weather, but they dismiss them as likely transitory.
The EURUSD remains stable forming a bull flat patter that could continue to test higher prices. Support is seen near the 10-day moving average at 1.3610, while resistance is seen near the recent highs at 1.3825. Momentum flat with the MACD printing near the zero index level while the RSI (relative strength index) is printing near 51, which is in the middle of the neutral range.
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