EUR/USD keeps a close eye on TRY – Danske Bank

Chief Analyst at Danske Bank Allan von Mehren noted the pair looks to the ongoing crisis in Turkey for near term direction.

Key Quotes

“The TRY crisis continues to dominate FX markets with a flight to the safety of JPY, CHF and USD as a result. As the central bank has – so far – failed to effectively respond to stop capital outflows, market worries over notably southern European banks’ exposure to Turkey has added a Turkey risk premium to EUR, i.e. there is a non-negligible risk that the ECB may have to delay tightening even further to prop these up”.

“Even in the event of a bold move from the central bank such as capital controls or a significant rate rise, we still doubt that the pressure on EUR/USD will evaporate near term: more fundamental TRY vulnerabilities (and in turn for EUR) have now been exposed, Italy fiscal risks linger for EUR, and the trade war issue remains a USD positive near term”.

“Furthermore, all this takes place in an environment of the Fed tightening policy both balance sheet and rate wise, which should keep USD bid for some time still. Key technical levels have been broken on the downside in EUR/USD and a key level to watch as low as 1.1119 (20 Jun-17 low)”.