The Turkish Lire has been taking a hammering as the market votes with its hand on the big red button and indicates it’s all but given up on the Erdogan regime, promises of supports to boost the economy have rarely met market expectations and it appears markets have simply had enough. We rarely comment on TRY simply because very few of our clients are exposed to it but the lire was down 75% for the year vs the USD at one point overnight, almost 20% in the last two days. It’s now become a bigger concern as contagions fears stoke risk aversion. The ECB are monitoring the situation closely and have some concerns on several European banks with larger exposures to Turkey and this has resulted with some euro selling this morning which saw EURUSD drop back below 1.1500 and quickly accelerate as low as 1.1431. Politically Turkey’s relationship with the US is frayed, but they’re not the only ones. Russia responded to US sanctions stating it was a declaration of economic war, while China also hit back at Tariffs with the promise of more on US goods. With all this going on its no great surprise to see markets nervous this morning and the big risk aversion assets are in very high demand, JPY and USD the standouts with the USD index reaching its highest level in 143 months.
We’ve been highlighting the 1.1500 area in EURUSD as a big level and the plummet down to 1.1431 at the beginning of trade this morning shows just how many order there were to sell the euro as we broke down from there, the suggestion here being that breakdown suggests we could now see further declines in EURUSD in the coming months. As it stands EURUSD is not yet seeing any oversold signals (like we’re getting from GBPUSD) so progress below 1.1400 would not be ruled out, especially if contagion concerns. Technically, this breakdown could see EURUSD drop all the way back to 1.0400 in time, now I’m not standing on my soapbox shouting that out just yet it’s a technical breakdown and if we fail to regain the 1.1500 handle soon, theres more downside ahead.
EURGBP traded up to .9030 exactly yesterday, the level we’ve been highlighting for some time. EURGBP has rarely held above the .9000 level for long and we traded as low as .8934 already this morning. Sadly it was more of a weak euro and not a rebounding pound that saw EURGBP drop lower, sterling still struggling against the greenback but showing signs we may well see a bounce here soon as well. The pound is heavily oversold and we’re down over 11% since May – the move has been sharp and fast but they don’t last forever, 1.2760 now providing some support and UK GDP is due for release this morning, expected to grow at 1.3%. If that comes out any weaker we could well see additional declines but a string reading will be all the pound needs to really rally higher.