(20 February 2020)DAILY MARKET BRIEF 2:The euro sales gained momentum

In the FX, the euro sales gained momentum after the German Gfk consumer climate data showed deterioration in economic sentiment in Germany versus no change expected. Further weakness in German data boosted the euro bears and paved the way for a deeper sell-off to 1.0777 against the US dollar. The downside prevails.

In the UK, the pound first rallied as inflation jumped to 1.8% in January from 1.3%, faster than expected by analysts. Stronger-than-expected inflation dispelled the Bank of England (BoE) doves but brought along the anxiety that the purchasing power of Brits may take a hit following the decline in wages growth printed a day earlier. Due today, January retail sales data should confirm if this is the case. According to a consensus of analyst expectations, the sales in January may have picked up 0.7% m-o-m versus -0.6% printed a month earlier. Any disappointment should revive worries of weakening purchasing power and weigh on the pound. Sterling traded near its post-election high against the euro on Wednesday and Cable advanced to 1.3022 before diving to 1.29. The reversal was mostly due to the spike in US dollar following news that core producer prices in the US spiked to 2.1% in January versus 1.6% expected by analysts and 1.3% printed a month earlier. But the Fed seems ready to accept a reasonable overshooting in inflation, though there is no consensus on the subject.

In the emerging market space, the Turkish lira traders didn’t welcome the latest 50-basis-point cut from the Central Bank of Turkey under the obvious pressure of President Erdogan. With inflation above 12% and a central bank decided to pull the rates to a single-digit territory, investors feel increasingly uneasy taking the risk of holding the lira. Short lira positions are expected to gain further momentum. It is just a matter of time before the 6.10 resistance is cleared against the US dollar.

By Ipek Ozkardeskaya