Rates as of 0500 GMT

Market Recap

Rather modest movements in the currency market since Friday morning.

The biggest move was in the Turkish lira TRY, which collapsed some 14 after Erdogan dismissed the head of the central bank the third CB head to lose his job in less than two years and replaced him with someone who favors low rates and growth rather than currency stability which many people think is a prerequisite to growth ask any Argentinian or Brazilian. Its now down only 9 but still

The sharp move should remind us of the dangers of carry trades. They are sometimes called picking up nickels in front of a steam roller.

The plunge in TRY sent the commodity currencies lower and JPY USD higher. That may have been due to people closing out TRY carry trades. AUD was also hit by a fall in iron ore prices.

I think the problems in Turkey are likely to be pretty much confined to Turkey and therefore not a systemic risk for the FX market. I dont think this is going to be anything like 1998, when a default in Russian bonds set off an enormous and sustained move in currencies as carry trades unwound. Anyone who was unaware of Erdogans mercurial nature was probably not smart enough to have a very big position anyway. I therefore expect the riskoff moves to reverse in due time and for the commodity currencies to rebound vs JPY.

Commitments of Traders CoT Report

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