EUR/USD collapsed on the Turkish crisis that threatens to cause some damage also to euro-zone banks. Will it continue falling? The upcoming week features further fallout from this crisis and also all-important GDP figures. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Turkey is suffering from high inflation and no significant policy to tackle it. The American decision to impose sanctions on two Turkish ministers due to the imprisonment of an American pastor exacerbated the fall of the Turkish Lira. The problem turned from local to global when a report in the FT said the European Central Bank is concerned about the stability of three major European banks with exposure to Turkey. EUR/USD was already pressured by unimpressive German data and the trade tensions between the US and China which pushed the greenback higher. The Turkish crisis pushed it to new 2018 lows were cascading stop-loss points turned the fall into an avalanche. In the US, Core CPI came out at 2.4% y/y, better than expected, providing further fuel for the Fed to raise rates.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar kicked off the week in the known ranges, rising to the 1.1624 resistance level mentioned last week. It then collapsed and hit a new 13-month low at 1.1387.
Technical lines from top to bottom:
1.1845 was the high point in early June. 1.1790 capped the pair in mid-July 1.1750 is a low point recorded in mid-May.
1.1720 is a veteran line that worked in both directions, last seen in November. 1.1676 was a temporary low point in late May.
1.1625 provided support to the pair several times in June and July. It is followed by the mid-July trough of 1.1575.
Below, 1.1508 is the previous 2018 low. 1.1450 capped the pair back in June 2017 and may play a role now.
The new low of 1.1387 is a key downside level. Even lower, 1.1300 is a round number and it also held the pair down in June 2017.
1.1115 was a low point also in that period of time. The very round level of 1.10 is next.
I remain bearish on EUR/USD
While the pair may see a temporary correction after the sharp drop and the Turkish crisis may be resolved, monetary policy divergence is still the name of the game. Caution from the ECB meets a hawkish Fed and the trend remains to the downside.
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