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  • EUR/USD is on the way to the highest correction since yesterday’s business at 1.1350 after making fresh 13-month lows while recent Turkish and Italian-focused concerns ease on the news that Qatar has pledged to invest $15 billion in Turkey.  
  • EUR/USD’s short-term technicals remain bearish.

USD/TRY dropped 700 pips on the knee-jerk sending the pair to 5.8588 and extending the impressive come back in the nation’s troubled currency. However, the correction in the euro is far from impressive with a mere 25 pip pop from the lowest levels since early July business.  

“Short-term sentiment swings are weighing on the EUR but we also think that the EUR’s tumble out of the low end of the mid-year consolidation range has also dealt a major blow to EUR bulls from a psychological point of view and will add to investors’ concerns that the single currency has really struggled to hold a bid in recent months,” analysts at Scotiabank explained.

While there has been some relief in the Lira’s depreciation, Turkey is still in the eye of the storm and analysts at ABN Amro note that it is therefore difficult to forecast what the actual outcome will be: “In all scenarios, a recession next year seems likely. Still, the magnitude of the recession and the pace of recovery later on will differ substantially depending on the policy choices that are made.”

The respite in the Lira’s decline may offer some room for a reflection to yesterday’s more promising data

The respite in the Lira’s decline may offer some room for a reflection to yesterday’s more promising data in the eurozone. Q2 Eurozone GDP was revised up +0.1ppts to 0.4%, above expectations, signaling a stabilisation in Eurozone growth after the steep slowdown in Q1. Also, the German ZEW survey of finance professionals posted an encouraging lift in August to 72.6 from 72.4 and the temporary truce in simmering US-Europe trade tensions may be bearing fruit.

EUR/USD levels

Analysts at Scotiabank argued, however, that “EUR/USD’s short-term technicals remain bearish. ” No amount of ‘lipstick” can embellish what is shaping up to be a quite poor technical phase for EUR prices action. Major support at 1.1500/10 failed to hold the EUR last week and minor consolidations – yesterday’s based around 1.1365 – are failing to hold even brief stabilizations in the currency or allow even the hint of a rebound. Trend signals are aligning bearishly for the EUR, suggesting the bearish medium/longer run implications of the break under 1.15 support have a good chance of being realized at this point. A weekly close under major retracement support (1.1448, 50% Fib of the 1.03/1.25 move up) targets the upper 1.11s.”