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USD/ZAR Indecisive as Political Pressure Intensifies

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USD/ZAR Outlook:

Political Pressure Intensifies

Although South Africa is still experiencing the first wave of the Coronavirus pandemic, the emerging market, which was already in a recession prior to the pandemic, is struggling to recover and regain investor confidence. Following on from Cyril Ramaphosa’s unveiling of an economic recovery plan yesterday, the market reaction reiterated the fact that investors are losing confident in the government’s ability to carry out these plans. While income disparities and political instability are additional factors to consider, it appears as if South Africa’s road ahead is definitely not going to be an easy one.

Meanwhile, with only 18 days to go until the US presidential elections, the uncertainty around additional stimulus is raising concerns regarding the economy’s ability to recover.

USD/ZAR Remains Confined to Key Fibonacci Levels

From a technical standpoint, the weekly chart below highlights how the Fibonacci retracement levels (From 30 Dec 2019 low to 6 April 2020 high), have formed support and resistance levels for the pair, with price action trading in an area of confluency between these levels.

Currently, price action appears to be confined by the 50% retracement level of this move at 16.64, holding both bulls and bears at bay.

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USD/ZAR Weekly Chart

USD/ZAR Weekly Chart

Chart prepared by Tammy Da Costa, IG

Stochastic Nears Oversold Territory

From a short-term perspective, the four hour chart below now highlights the stochastic nearing oversold territory after crossing the 80 mark from above. Should it fall below 20, this may be a possible indication that the trend may reverse towards the upside or that the downward trend may be losing momentum, at least in the short term.

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USD/ZAR Four Hour Chart

USD/ZAR 4 hour chart

Chart prepared by Tammy Da Costa, IG

USD/ZAR Strategy Ahead

As long as price action remains above 16.50, the 50% Fibonacci retracement remains as resistance at 16.65. If this level is broken, further upside may prevail with the next resistance level around the psychological level of 17.00.

On the other hand, a break below may push price action towards the next level of support at 16.10, the 23.6% retracement of the long-term move.

— Written by Tammy Da Costa, Market Writer for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707





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Forex

GBP/USD Extends Gains, Brexit Talks to Resume

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GBP/USD Price Analysis & News

  • Brexit Talks Set to Resume
  • GBP/USD Extends Gains to Session Highs

Brexit Talks Set to Resume GBP/USD Extends Gains

Brexit talks are set to resume, a headline that shouldn’t be a surprise to many given the renewed optimism, but enough to give the Pound an added push towards session highs. The source report also noted that the aim is for a deal by mid-November with confirmation of the decision to restart talks expected within the next 24hours. Keep in mind however, that mid-November had been previously highlighted as a new Brexit deadline date if talks were to continue. Alongside this, EU’s Barnier and UK’s Frost are due to speak for the third time in as many days, where we may receive further clarity on the latest reports.

GBP Forecast

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That said, the Pound had been notably firmer prior to the reports after EU’s Barnier noted that compromise is needed on both sides to reach a deal, which marked a slight change in message from last week, where the EU emphasised that the UK needed to compromise.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -16% 26% 7%
Weekly -6% 27% 13%

GBP/USD 1-Minute Chart: Daily Time Frame

Brexit Latest: GBP/USD Extends Gains, Brexit Talks to Resume

Source: IG

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Forex

USDJPY Price Hits a One-Month Low as the US Dollar Continues to Crumble

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USDJPY Price, News and Analysis:

  • US dollar basket below 93.00.
  • USDJPY heads lower as support breaks.
  • IG client sentiment is mixed.

The US dollar continues to leak lower and the dollar basket (DXY) is now below a noted short-term support level around 93.00. The main driver of the move – as we mentioned here at the weekend – is the ongoing US stimulus bill discussion. Tuesday’s more positive tone for an agreement has weighed further on the US dollar and taken it through its short-term support. The DXY is looking oversold currently, so a small short-term rebound cannot be ruled out.

US Dollar (DXY) Daily Price Chart (February – October 21, 2020)

USDJPY Price Hits a One-Month Low as the US Dollar Continues to Crumble

JPY Forecast

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The Japanese Yen has pulled in a small bid today as well, exacerbating the move lower. A look at CHFJPY shows the recent run higher has stopped and turned lower today, suggesting that the Japanese Yen is today’s preferred safety play. USDJPY today touched a low of 104.87, a new one-month low and if sentiment remains negative, two recent swing-lows between 104.00 and 104.19 come into play. The CCI indicator suggests the market is oversold but not at recent extreme levels.

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USDJPY Daily Price Chart (April – October 21, 2020)

USDJPY Price Hits a One-Month Low as the US Dollar Continues to Crumble



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -5% -13% -8%
Weekly -7% -21% -13%

IG client data show 57.00% of traders are net-long with the ratio of traders long to short at 1.33 to 1.The number of traders net-long is 6.50% lower than yesterday and 8.93% lower from last week, while the number of traders net-short is 1.14% lower than yesterday and 8.98% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall.Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.

What is your view on the Japanese Yen – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.





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Biden risk looms for Turkey’s Erdogan and beleaguered lira By Reuters

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2/2
© Reuters. FILE PHOTO: U.S. VP Biden meets with Turkey’s President Erdogan in Istanbul

2/2

By Jonathan Spicer

ISTANBUL (Reuters) – Turkey stands to lose more than most other countries if Joe Biden is elected president since he is expected to toughen the U.S. stance against President Tayyip Erdogan’s foreign military interventions and closer cooperation with Russia.

Investors and analysts say the beleaguered Turkish lira is especially vulnerable if a Biden White House pulls the trigger on long-threatened sanctions over Ankara’s purchase of Russian S-400 missiles, which Washington says compromise NATO defences.

An apparent S-400s test last week prompted a furious response from the State Department and Pentagon. Top Republican and Democratic U.S. senators also called for sanctions that could hobble a Turkish economy hit by two slumps in as many years.

Erdogan has downplayed possible fallout and promised counter-sanctions.

The American threats have rung hollow since Moscow shipped the weapons to Ankara in mid-2019, largely because President Donald Trump has resisted punishing Erdogan, with whom he has regular calls, saying he hopes talks will resolve the issue.

Erdogan has leveraged his warm ties with Trump to flex military muscle in Syria, Libya, the Eastern Mediterranean and this month in Nagorno-Karabakh, filling some gaps left by a U.S. retreat from the region in recent years.

But the relationship could cool if Biden, the Democratic candidate and front-runner, wins the November 4 election.

In remarks that drew sharp criticism from Ankara, Biden in December advocated a new approach to the “autocrat” Erdogan and fretted over close Turkish cooperation with Russia.

Biden has said little specifically about the issue recently and his campaign did not respond to a request to comment. His platform calls on “all NATO nations to recommit to their responsibilities as members of a democratic alliance.”

The lira, down 24% this year to all-time lows, already partly reflects the Biden risk, investors say. Any decisive rebound in Turkish assets may be delayed until after the vote when the White House decides whether, and perhaps how, to sanction Turkey.

“A Biden victory would certainly increase the risk of U.S. sanctions … and of course you’ll have anxiety returning to an already unstable financial market that has been hit by the pandemic,” said Roger Kelly, lead regional economist at the European Bank for Reconstruction and Development.

The lira’s slide is due mostly to depleted FX reserves at the central bank, double-digit inflation and what Moody’s (NYSE:) says is a balance-of-payments risk.

Yet the U.S. election has loomed in the background: the latest currency selloff began in July, when Biden’s near 10-point lead in polls solidified. A Turkish government spokesperson did not immediately respond to a request for comment.

For a graphic on Emerging market currencies split by U.S. election risk:

https://fingfx.thomsonreuters.com/gfx/mkt/dgkpljmelpb/Pasted%20image%201602583295562.png

Some investors say now that $13.5 billion has been pulled from Turkish bonds and stocks this year there’s good reason to invest, especially after the central bank began hiking its key interest rate, which is expected to hit 12% on Thursday.

But sanctions over S-400s, now back on the radar, are making some optimists think twice.

“There’s justification for owning Turkish hard currency paper. You may have to navigate through some choppiness but … quite a bit of bad news is already priced in,” said Blaise Antin, head of EM sovereign research at Los Angeles-based TCW.

“Yet the Erdogan back channel to the White House will very likely be much weaker” under Biden, he added. “Erdogan is a pragmatic guy. I expect he would try some sort of pivot.”

NEW U.S. APPROACH

Turkey’s Presidential Spokesman Ibrahim Kalin said this month it would work with any U.S. president yet press him to abandon support for Kurdish militant groups in Syria, and to extradite U.S.-based Muslim cleric Fethullah Gulen who it says orchestrated a failed coup in 2016.

Finance Minister Berat Albayrak has downplayed the fall in the lira, which is near 8 versus the dollar, and he expects Turkey’s economy to avoid a contraction this year.

For a graphic on Timeline of Turkish lira’s gradual decline:

https://fingfx.thomsonreuters.com/gfx/mkt/yxmvjjnyqvr/Lira%20timeline%20US%20elections.PNG

Foreign holdings of Turkish government debt have fallen to 3% from more than 25% five years ago. Flows briefly reversed after last month’s surprise rate hike, but the rally was cut short by reports of the planned S-400 test.

A U.S. House defence spending bill worth hundreds of billions of dollars includes sanctions on Turkey under the Countering America’s Adversaries Through Sanctions Act (CAATSA) that is meant to punish countries dealing with Russia.

The Senate could pass it and send it to the White House as soon as December, setting the stage for Biden or Trump to select mild or harsh sanctions next year. Separately last year, Washington suspended Ankara’s involvement in an F-35 programme.

Erdogan sees Turkey’s NATO membership and its opposition to Russia in conflicts in both Syria and Libya as a check on what any U.S. Administration might do, said Nikolay Markov, senior economist at Pictet Asset Management.

“The U.S. will need to rely on Turkey as the main ally in that region, so that puts a cap on sanctions they can take against Turkey,” he said.

(For a lira timeline, click here: https://tmsnrt.rs/3dR1RCY)





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