Ufuk KORCAN / THE ROAD TO MONEY
There are truly extraordinary movements in the markets. While the prices of raw materials, particularly oil and gold, have experienced strong fluctuations, the euro/dollar parity has reached its lowest level for 20 years. On the macroeconomic side, everyone, including developing countries like the United States and Germany, has embarked on an all-out fight against inflation. As the U.S. Federal Reserve (Fed) decided to raise interest rates for the first time since 2018, with a 25 basis point increase at its March meeting, it made the most rate hike ever. fast since 2000 with 50 basis points at the May meeting. At the June meeting, the Fed raised the key rate to a range of 1.50 to 1.75%, with a 75 basis point increase, the fastest rate hike since 1994.
In this process, where the Fed also curbed monetary expansion, the European Central Bank (ECB) was slow to take action, particularly on interest rate hikes, causing the gap between the dollar and the euro to close. euro in favor of the dollar. In addition to the increase in raw material prices caused by the war between Russia and Ukraine and the problems encountered in the supply of gas, the current account deficit of the German economy after many years and the political situation in Italy are marked out as other developments that have favored the weakening of the Euro.
Hand turned with final decision
A similar drop in the euro/dollar parity has been observed in the past. The euro/dollar parity, which was around 1.35 in mid-2014, moved in the 1.03-1.16 band between 2015-2017. The reduction of interest rates to zero by the ECB in this process of supporting the economy, its purchases of bonds, the discussions on Brexit and the terrorist attacks have caused the euro to lose strength against the dollar . At the point where we are today, the ECB raised interest rates on Thursday after 11 years and raised the key rate by 50 basis points. Expectations were for a 25 basis point increase. The statement after the decision bolstered expectations that interest rate hikes will continue in September. Levels of 1 in the euro/dollar parity are considered the “worst” price levels in terms of the euro. Consequently, the evolution of the parity in the coming period will depend on the decisions that will be taken by both the Fed and the ECB. However, the ECB’s interest rate hikes and the possibility that the Fed will stop the hikes before the ECB is interpreted as the turning pointer in favor of the euro.
Euro Investor Loss of $6.5 Billion
When we look at the distribution of foreign currency accounts in the banking sector in Turkey, we find that about half of them are made up of dollar accounts, 26-27% are made up of euro accounts and the rest are made up of other currency accounts. According to Central Bank data, at the beginning of the year there was a euro account in the sector, which corresponds to approximately 73 billion dollars. According to today’s exchange rates, the size of the euro accounts is estimated at 64.4 billion euros. Given the levels reached by the exchange rates, if the foreign currency accounts held in euros were in foreign currency, there could be an additional $8.3 billion in savers’ accounts. When we take into account the increase in the parity after the ECB’s decision to increase the interest rate, this gap decreases to 6.5 billion dollars. Given the distribution of DTHs with more euros in companies, it should be noted that legal persons prefer the euro to individuals. National residents have a total of 64.2 billion euros in their euro accounts at depository banks. While $31.2 billion of this amount is due to real person accounts, $32.8 billion is due to corporate accounts.
Pay attention to these Dollar/TL levels!
It is negative that the pair USD/TL remains above the level of 17.07 TL on the weekly chart. Because staying above this point increases the risk of testing the 18.25 TL level. For this reason, to talk about a relief on the parity, one must first go below the level of 17.07 TL in technical terms. In such a scenario, real relief can be obtained by falling below the 15.73-15.95 TL level. If this happens, the probability of seeing the level of 14.85 TL in the first stage will increase. Especially falling below the 15.73 TL level signifies a break in the upward trend that started the week of January 3, 2022. For this reason, the most important point for possible pullbacks is now here…
Critical level in parity: 1.049
The euro/dollar parity is under the influence of the downtrend line, which it started at the level of $1.14734 the week of February 7, 2022. It has recently transformed this trend line into a downtrend channel. And within this channel, the cycle between resistance points and support points repeats, with the main trend down. In this context, the resistance point of the downtrend channel for this week is at $1.04909 and the support point is at $0.98674. In other words, for the pair to get rid of the effect of the downtrend channel, it must first break the resistance at $1.04909. If this happens, we can say that the main objective is $1.07758. It should be remembered that the main trend is down on a weekly basis as long as it remains in the channel.
In this process, where the Fed also curbed monetary expansion, the European Central Bank (ECB) was slow to take action, particularly on interest rate hikes, causing the gap between the dollar and the euro to close. euro in favor of the dollar.