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Euro at Risk on Banking Fears Despite Rally in Turkish Lira

Euro at Risk on Banking Fears Despite Rally in Turkish Lira

2018-08-15 11:00:00
Martin Essex, MSTA, Analyst
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EUR price, news and analysis:

  • Downward pressure on the Euro is growing despite a firmer Turkish Lira after its recent steep decline.
  • Concerns about European bank losses due to their exposure to Turkey are intensifying.

Our trading forecasts for Q3 have been published; you can find the EUR guide here.

And check out the IG Client Sentiment data to help you trade profitably.

Euro in danger of further falls

EURUSD has dropped to its lowest level since July 2017 and could yet fall further as the recent slide in the Turkish Lira raises concerns about European banks’ exposure to Turkey.

Losses for the pair have been exacerbated by the strength of the US Dollar, which is seen increasingly as a “safe haven” for investors wishing to reduce their risk. The Dollar Index, which measures it against a basket of other currencies, is at its highest level since June last year.

The Euro is weak elsewhere too, falling for example to its weakest point since August last year against the Swiss Franc, which is also seen as a haven currency. However, it is the Euro’s losses against the US Dollar which are currently in the spotlight.

EURUSD Price Chart, Daily Timeframe (June 25, 2017 – August 15, 2018)

Latest EURUSD price chart.

Chart by IG

The key levels to watch out for now for EURUSD are the lows at 1.1179 and then 1.1119 touched on June 27 and June 20 last year. Note, though, that retail trader positioning data show traders are less net-long than yesterday and compared with last week – suggesting a possible rally from a contrarian perspective.

As for the Turkish Lira, that continues to recover some of its recent losses.

USDTRY Price Chart, Daily Timeframe (February 19 – August 15, 2018)

Latest USDTRY price chart.

Chart by IG

The Lira has been helped by central bank action to squeeze Lira liquidity, effectively tightening monetary policy. However, there are few signs of a truce in Turkey’s dispute with the US over Turkey’s detention of an American pastor. Turkey has doubled tariffs on some US imports in retaliation for similar US moves.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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