Financial market research and analysis

Turkish Referendum

The Turkish referendum on April 16^th is going to be the major highlight of the weekend. Turkish citizens will say ‘yes’ or ‘no’ to a constitutional change, including 18 amendments which will consolidate the authoritarian President Erdogan’s power at the heart of the government.

While a ‘no’ vote could trigger a relief-rally across the Turkish lira and lira denominated assets, the market reaction to an eventual ‘yes’ vote is unpredictable. A ‘yes’ victory could bring along a sharp sell-off at Monday’s open, yet a downside squeeze could also attract anti-establishment, dip-buyers and result in a rebound, as has been the case following the US election.

Although the accuracy of the market polls are questioned, Reuters has reported that a ‘yes’ vote may have slightly taken the lead. As such, Turkey could open a new page in its modern history on Monday. 

LCG’s Senior Analyst Ipek Ozkardeskaya highlights that two-sided volatility is likely to be on the menu on Monday, as uncertainties regarding both results would reveal many questions.

Even though some interpret ‘yes’ as a continuation of Erdogan’s actual empowerment, an eventual regime change could squeeze the country’s fundamentals, hence reshuffle the valuation of Turkish assets and the lira in the medium to long term. On the other hand, there are rising speculations that a no vote could be followed by another referendum. If this is the case, the anticipated relief rally of an eventual ‘no’ vote could rapidly be replaced with a tenser mood in the short run.

China Q1 GDP in focus

Moving on to the next week, the European markets will be closed on Monday due to Easter holidays. Hence, the week will start with focus on the Chinese GDP data. Chinese GDP growth may have eased to 1.5% in the first quarter from 1.7%. The year-on-year growth is expected unchanged at 6.8%. The surprise surge in March’s trade surplus eased selling pressure on the yuan on Thursday. The yuan could recover further if the data is in line with, or stronger than expectations.

A closer look at G10

Moving to the G10, there has been decent price squeezes in the currency markets over the last trading week. The US dollar plunge marked the start of the week, after US President Donald Trump complained about the US dollar ‘getting too strong’. The comments hit the wires just a day after Fed Chair Janet Yellen said that a ‘neutral’ stance would be appropriate for the US’ monetary policy.

The reflation rally paused, both for FX and equity markets, as the US Congress left for a two-week holiday without delivering further details regarding Trump’s ‘phenomenal’ tax cuts and fiscal plans.

The USDJPY traded below the 110 mark and the softening US yields shifted the attention to the 105 mark.

 
The US 10-year yields tanked to 2.22%, the lowest levels seen since November. Reuters pointed at 1.90% as the next meaningful support. Gold easily surpassed its 200-day moving average and is set to take over offers at $1300 and above.


Source: LCG Trader

UK Retail Sales & Sterling

The GBPUSD traded above its 200-day moving average for the first time since the Brexit referendum on June 23^rd. The UK's solid inflation and wages data is backing the positive momentum at the moment. Rising inflationary pressures in the UK will likely worry an increasing number of MPC members, and could bring the Bank of England to adopt a hawkish tone sooner rather than later. This being said, the probability of a rate hike in December stands at an almost insignificant 12.5%. UK retail sales data is due out on Thursday, with analysts expecting a slight contraction in March retail sales. Any positive surprise could enhance GBP-bulls, while a disappointment could bring the BoE doves back to the market.

Source: LCG Trader

Oil Prices

Finally, oil inventories rose in the first quarter despite the OPEC cuts according to new data from the Energy Information Administration (EIA). The barrel of WTI rebounded lower from $54, and the correction threatens the possibility of a rise towards $55. A correction could pull the price of a barrel down to $52.40, the minor 23.6% retracement on the latest March-April rise, before the critical $51.40 mark, the major 38.2% retracement.

Source: LCG Trader

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