What Erdogan means for USDTRY....

11 мая 2016, 17:06

There is considerable risk that the EU-Turkey refugee deal will collapse in the coming weeks.

The deal negotiated and finalised on March 18 is now at risk as president Recep Tayyip Erdogan has sacked his prime minister Ahmet Davutoglu who negotiated the deal.  Erdogan has made absolutely clear that he will not comply with the 72 conditions Brussels insisted on for visa free travel into Europe.

Measures he will not comply to include preventing corruption and revision of the terrorism legislation to mirror the European standard .

The March deal was very much the work of chancellor Angela Merkel and she has come under massive attack at home for the deal as seen by recent polls where CDU/CSU coalition is losing out to the right-wing anti-immigrant party Alternative fur Deutschland (AfD).

The Turkey EU refugee situation will potentially overtake the Brexit vote in the UK as Europe’s ability to pretend-and-extend is running out time.

The Brexit vote (I’m writing my Brexit view this week), in my opinion, will only be catalyst, not a massive risk event in itself, on Europe’s future. UK’s “future” is not about in or out of EU, but about a massive budget and current deficit accumulated over last three decades and entirely financed by foreigners into a global market outlook where banking and real estate will be under pressure, not because of Brexit or not, but due to the ill managed transformation of the UK economy and over-dependence on banking and real estate – two sectors with exactly ZERO productivity.

The fact that prime minister David Cameron got a deal from EU ahead of the vote means Europe today de facto has a two-tier Europe. One set of rules for UK (even when staying in) and one for the rest. After the June referendum more countries will ask for “special deals” as the refugees, the growing gap between the European Central Bank and politicians, and similarly, the expanding divide between Germany and Club Med (Angela Merkel and Germany shot down Italy’s attempt to make European bonds finance refugees).

Today we start another chapter in the Greek tragedy on more loans to Greece! The never ending story – the Greek “solution’ will have to be a debt haircut, something totally unacceptable to Merkel who more than anyone seems to believe that inaction and buying time is the solution to all of Europe's problems.

But the key market-wise remains Turkey. I have been long fan of Turkish assets (not Erdogan!) – arguing that real rates are too high as long as USDTRY trades sub- 3.05/3.06.

Source: Bloomberg, Saxo Bank

I NO longer have this view. The Turkish stock market has performed well – as an emerging market – but has dropped significantly over the last week:

Source: Bloomberg, Saxo Bank

Source: Bloomberg, Saxo Bank

Source: SaxoTraderGO

Management and risk description

The market is busy scaremongering for and against Brexit, meanwhile, the refugee situation and the European Central Bank's killing growth in Europe through sub-zero rates remains unchallenged except in the polls. There is as I have said before a BIG RISK that the “social contract” will be FORCED into renegotiation due to the ill-advice of buying time. Time is the only commodity we can’t buy, maybe its time for the politicians and central bank to wake up to this fact.

The guarantee is that both the political and market noise is increasing……even for the most tone deaf policy makers globally.

Entry: Long USDTRY 2.9200 
Stop: 2.8925

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