Date
25 March 2017
The euro has failed to break above 1.12 against the dollar, a key resistance level, over the last three weeks. Photo: Bloomberg
The euro has failed to break above 1.12 against the dollar, a key resistance level, over the last three weeks. Photo: Bloomberg

Euro under pressure as market expects further stimulus

The military coup in Turkey has been quashed, easing some of the market concerns over geopolitical risks. The Japanese yen and gold both fell back on Monday.

President Recep Tayyip Erdogan has accused exiled cleric Fethullah Gulen of orchestrating the coup attempt and is demanding that the United States extradite him.

Also, Turkey has blocked access to NATO military bases within its border, further straining its relations with Washington.

The political turmoil in Turkey may continue to unnerve investors in the near future.

The US Dollar Index hit a four-day high on July 15, boosted by encouraging economic data from China and the US.

Meanwhile, investors are expecting another rate hike this year. According to CME’s FedWatch tool, the chance for a rate hike before December rose to 46 percent, compared with below 20 percent at end of June.

Surprisingly, the Bank of England kept its interest rates unchanged, while Japanese policymakers are considering “helicopter money” to stimulate growth.

Investors are still digesting the news of the terrorist attack in Nice and the coup attempt in Turkey.

The European Central Bank is expected to leave its 1.8 trillion euro (US$2 trillion) stimulus package unchanged during its policy meeting on Thursday.

Government bonds in the European Union have seen plunging yields, and some bond traders believe the central bank may act in response to a short supply of eligible bonds. 

Currently, more than half of Germany’s bonds are not qualified for the bond purchase program.

The euro has failed to break above 1.12 against the US dollar, a key resistance level, over the last three weeks. The 100-day moving average is around 1.123.

The currency may slip further to 1.1 or 1.09, or even hit the trough of 1.082 in March.

New Zealand’s central bank on Tuesday unveiled measures to further tighten rules on mortgage lending to cool the country’s red-hot housing market and safeguard financial stability.

Under the proposed plan, no more than 5 percent of bank lending to residential property investors would be permitted with a loan-to-value ratio of more than 60 percent.

Also, no more than 10 percent of lending to owner-occupiers would be allowed with a loan-to-value ratio of more than 80 percent.

The move is widely considered to pave the way for an interest rate cut.

The New Zealand dollar tumbled to a three-week low of 0.7011 against the dollar.

The next support level is around the 100-day moving average of 0.689, while the resistance level is at the 25-day moving average of 0.715.

This article appeared in the Hong Kong Economic Journal on July 20.

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

JZ/DY/CG

Sales director, Emperor Capital Group Limited; HKEJ columnist

EJI Weekly Newsletter

Please click here to unsubscribe