Asian markets swung back to the positive territory on Tuesday afternoon as Turkish lira stopped bleeding and rebounded alongside with other emerging market currencies.

Volatility fell and risk sentiment improved across the board as market participants tend to believe the worst is probably over for lira, following several measures carried out by Turkish government to stabilize the currency.

Dollar continued to strengthen with the US dollar index extending gains to the 96.7 area, a level not seen since June 17. US equities rebounded 0.6% on average and all of its 11 major sectors were closed in positive readings last night. The Turkey-induced turmoil triggered a technical correction in US equities but is unlikely to change the ascending trend in the mid-term. 

USD/TRY retraced back to 6.37 area from 7.15 that was seen on Monday. Technically, 7.0 remains to be a strong resistance level that has been tested multiple times earlier this week. By drawing a Fibonacci retracement over USD/TRY, we can find its key support levels at 6.39 (38.2%), 6.17 (50%) and 5.95 (61.8%) retracement respectively.

Global equities were probably over-punished by concerns of contagion effect as a result of Lira’s collapse. The impact for now, however, has largely remained in the sentiment level and it has very limited influence over regions outside Europe. The real threat comes if Turkey’s currency rout escalates into a banking crisis and risk further spread over to European banking system. Unless we see that happen, risk sentiment will probably recover soon as short-covering activities reinforce the rebound in EM currencies.

In Singapore, the Straits Times Index closed almost flat yesterday and thus formed a candle pattern of ‘doji’, suggesting that market is indecisive of where to go next. In a bearish trend, ‘doji’ is sometimes read as a trend-reversing signal as selling force is depleted and buyers are back to the market again.

USD/TRY

By Margaret Yang in Singapore

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