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According to analysts at Societe Generale, further downside for the EUR/USD could be seen as TRY contagion continues to take a toll.

Key quotes

“The Lira is down 28% against the US dollar so far this month. For some G10 context, the pound fell by just 11% in September 1992, though the lira fell by 30% in February 2001 (with a formal devalution) and lost half its value over the course of the year.  A year when the rand lost 37%.  Both are vulnerable to international portfolio flows drying up.

Two further issues are worth attention. The 1st is the risk that the lira’s woes take EURUSD to 1.10 or so. And, the second, related, is that the global landscape is different now because US inflation is edging higher and the Fed has more work to do, limiting the scope to pour oil on the markets troubled waters.

The danger to the euro comes from BTPs, as well as Turkey. Europe is obviously more vulnerable to shock waves, economically and politically than the US is. And while the big EUR long has been all but eradicated, the euro still lacks yield support and there is room for shorts to build. There’s nothing to stop the current slide continuing this week and beyond.”