EUR/USD: Turkey and changing COVID risks could trigger a deeper correction –  MUFG

.Analysts at MUFG Bank, keep a trading idea of shorting the EUR/USD pair with a target at 1.1600 and a stop loss at 1.1950. They consider that the situation in Turkey and changing dynamics regarding the coronavirus could trigger a deeper correction lower. 

Key Quotes:

“It is short-term tactical trade to reflect the increasing risk of a correction lower for the pair in the near-term. EUR/USD has surged higher by almost 7% since June. It resulted in the USD becoming heavily oversold thereby increasing the risk of a correction lower. Over the past week, EUR/USD fell back towards 1.1700 after hitting a high of 1.1916 on 6th August. We still believe the pair could stage a deeper correction if support at 1.1700 is broken.”

“The sharpening sell off in the Turkish lira in recent weeks could provide the catalyst to trigger a correction lower for the EUR. The euro underperformed during the lira currency crisis in 2018 which highlights downside risks going forward if history is repeated. At the same time, there is building concern over the renewed spread of COVID-19 in Europe which could take some shine away from the EUR.”

“We remain wary though of the risk that the USD could weaken further ahead of Jackson Hole at the end of this month so have set a tight stop at just above recent highs.”