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  • EUR/GBP has been supported at the rising channel and in the regions of 0.8920 as the euro gathers some support after a whitewash Friday and open in Asian markets following the scramble to the greenback and an almighty sell-off in the Turkish Lira.
  • EUR/GBP is currently trading at 0.8938 having tested a low of 0.8912 and a corrective high of 0.8946.

In an article published at the open of Asina markets overnight, here:  Black Swan Friday (that we should have seen coming) as it happened – Turkey risk and the tide of US dollar funding.  We explained the what has happened in terms of the Lira and what affects this ha splayed out throughout global markets.

What markets are now looking for is a resolve to the systemic crisis at hand and the contagion that is rattling the ECB.  The Turkish finance minister made an announcement of an action plan that is to be implemented today and that has seemed to stall, at least, the rout in markets for the time being and indeed the Lira has finally made a short-term bottom at 7.0558 and the euro at 1.1364. EUR/GBP is left licking its wounds at the channel support.  

However, the euro is far from being out of the woods yet due to the escalation of the U.S. tariffs on Turkey which sent USD/TRY up 40 per cent on the week as of today. As explained in Black Swan Friday (that we should have seen coming) as it happened – Turkey risk and the tide of US dollar funding, wild swings in the currency plays havoc on the indebted economy and its eurozone creditors, (which is alarming the ECB).  So, in other words, these plans from the finance minister better be good and significant changes need to be implemented – if into the current volatility will continue to reverberate through European markets and the dollar is likely to be the most viable option for investors just as it was in the financial crisis of 2007 and for the same reasons.  

EUR/GBP fundamentals have been sidelined and Brexit angst can take a back seat for the time being

EUR/GBP fundamentals have been sidelined and Brexit angst can take a back seat for the time being – but only for a moment. (However, it should be noted that  fears of a “no-deal Brexit” were the catalyst for last week’s drop to 1.2723 where GBP shorts continued to grow as such fears over the chances of a hard Brexit tightened their grip – indeed, Brexit talks will commence again this week and could well be the nail in the coffin for the pound if they lack positive momentum – markets are looking to see if there will be an extension of the negotiation deadline. However, the implications of a banking crisis in the EZ trumps the unknowns of how Brexit will play out in the short term so EUR/GBP should remain highly vulnerable at this fragile technical juncture of trendline support.  

EUR/GBP levels

The 100 4hr SMA has been a fragile support since 22nd June’s business and below there comes the 200 4hr SMA at 0.8888 pretty much in line with the three-month support line that is located at 0.8886. We then have the 0.8855 early August low as well as the 200 D SMA at 0.8823.

“Unexpected failure at the 0.8822 level would push the five-month support line at 0.8806 to the fore. Minor resistance comes in at the 0.8960/69 March and July peaks. Where are we wrong? Failure at the 0.8799 July low would neutralize our medium-term outlook and put the June through at 0.8697 on the plate. Short-Term Trend (1-3 weeks): Has been rejected by the 0.9014/34 resistance area. Long-term trend (1-3 months): Targets the 0.9308 August 2017 high,”

analysts at Commerzbank explained.