The Indian rupee has company.
The Turkish lira has replaced it as the troubled currency du jour. It has now fallen 13% against the dollar year-to-date, to hit a record low. The decline follows dovish comments from the Turkish central bank, as well as expectations of Federal Reserve tapering.
So why should you care?
After all, these might be lovely places to visit, but chances are, you aren’t planning on going to Mumbai or Istanbul anytime soon.
Well, according to some traders, this budding currency crisis could have a profound impact on where U.S. stocks go next.
“I’ve been arguing the long side of equities on the show for the past few weeks,” said Todd Gordon of TradingAnalysis.com. “But perhaps we’re seeing developed markets heed the warnings that emerging markets have been giving.”
Much of the recent 900-point decline in the Dow from its recent highs has been fueled by fears of Fed tapering. But the destabilization of emerging market currencies has added to the level of uncertainty and fear.
“Liquidation out of emerging market currencies could lead to more anxiety in U.S. stocks, and maybe some panic selling,” said Kathy Lien, managing director of FX Strategy at BK Asset Management. “This is one of the reasons why U.S. stocks are struggling despite good economic news.”
So how bad could it get for the Dow?
Recent price action suggests stocks may have found a floor. Since the August 27th low, the S&P 500 has rallied 3% while the rupee fell 3%, implying that perhaps the worst is already baked into stocks.
But what do the charts say? Watch the video above to find out.