While EUR/USD may have found some stability after tumbling down due to the Turkish crisis, this may not be the end of it and 1.10 may come to play.
Here is their view, courtesy of eFXdata:
Societe Generale Cross Asset Strategy Research discusses EUR/USD near-term outlook and thinks that the EUR is vulnerable to a further sharp sell-off on further contagion from the Turkish Lira crisis.
“The Lira is down 28% against the 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 devaluation) 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,” SocGen notes.
“Two further issues are worth attention. The first is the risk that the Lira’s woes take EUR/USD 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 poor oil on the market’s troubled waters.
The danger to the euro comes from BTPs, 6bp higher this morning, as well as Turkey. Europe is obviously more vulnerable to shockwaves, 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,” SocGen argues.
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