Discounting political risk

The events in Turkey late Friday and over the weekend have been the main influence on markets so far, with the Turkish lira recovering more than half of the losses seen late Friday as the dust settles from the attempted coup. Naturally, there are going to be more far reaching consequences for Turkey, both domestically and beyond, with the latter likely to be top of the agenda at the meeting of EU foreign ministers today. The other major news is the proposed deal between Softbank and ARM holdings in the UK. This is notable because it’s (the relatively conservative) Japan doing the buying, but also that there is interest in UK assets after the Brexit vote, perhaps in part owing to the move in the exchange rate between the two countries over the past 12 months, sterling down nearly 30% versus the yen during this period. ARM have been a key UK success story in recent years, their chip technology present in many mobile devices.

On the wider picture, the dollar index has nudged towards the top of the range that has been in place since the Brexit move, with a break above the 27 June high of 96.705 not quite yet managed on a sustained basis. The dollar remains a balance between the interest rate story (the Fed still not seen hiking this year) and the safe-haven picture, which if anything is arguing for a higher dollar at this point in time. The yen is under some pressure this morning, naturally the ARM story adding to that in the background, with USDJPY opening above the 105.00 level. The data calendar is relatively light today and markets could well be heading for what is sometimes called the ‘summer lull’. In my experience, this is usually a myth, with the recent various sovereign crisis in the Eurozone often making the summer more exciting, together with the previous debt ceiling crisis in the US.

Did you know?

If overwhelmed by pessimism and falling prices, the FX market is defined as “bearish”, while if characterised by optimism and rising prices, it is called “bullish”. These two terms derive from the way in which bears and bulls attack their opponents, with the former swiping its paws downwards and the latter thrusting its horns upwards.

Word of the day
"Pip" - The smallest increment in which a currency pair can move. It is usually the fourth decimal place of the quote currency in a pair. In the case of the Japanese yen (JPY), it is the second decimal place of the quote currency.
Pro Tip

Higher leverage --> Less funds required as margin / Lower leverage --> More funds required as margin