EM Currencies Threatened by Contagion Fears, Gold Tumbles

Global risk sentiment swung back and forth amid fears over slowing global growth while the events in Turkey added to the market caution. With the Lira depreciating more than 5% on Thursday as Turkey’s reserves fell by almost $10 billion in three weeks, emerging market currencies are feeling the heat. Rising fears of possible contagion from the Lira selloff is likely to weigh on EM currencies in the near term.

In China, the Yuan extended losses against a broadly stronger Dollar with the USDCNY trading around 6.7380 as of writing. The Yuan’s weakness has more to do with external drivers, given how other major emerging market currencies are depreciating against the Dollar. Buying sentiment towards the local currency could brighten if US-China trade talks conclude on a positive note. In regards to the technical picture, the USDCNY is pushing higher on the daily charts with the next key point of interest at 6.76.

Across the Atlantic, King Dollar reigned supreme across currency markets this week thanks to dovish central banks and safe-haven flows. However, concerns over slowing US economic growth and a dovish Fed is likely to limit upside gains.

In the latest developments to the Brexit saga, UK Parliament will be holding a third vote on Theresa May’s Brexit deal on Friday evening. A scenario where the agreement is approved will result in the EU delaying Britain’s divorce from the bloc until May 22. If the deal is rejected, the UK will have until April 12 to announce a new plan or depart without a deal in place. The Pound will find itself vulnerable to downside shocks if a no-deal Brexit becomes reality.

It has been a bearish trading week for Gold thanks to an appreciating Dollar. Although prices have broken below the $1300 psychological level, the medium to longer term outlook still remains in favour of bulls. Global growth fears, a dovish Fed and geopolitical risks have the potential to limit Gold’s downside. Bulls need prices to break back above $1300 to jump back into the game.