EUR/USD has crashed below figure 14 base first time since July 2017

The support at 1.1535 was broken through and EURUSD went beyond the borders of the middle-term trading range, marked in April. That resulted in massive closing of long positions for euro and sent euro bulls to knockout. To the Euro-area pains, including bad weather, German workers’ strikes and a flu epidemic, Turkey was added. According to the president Recep Erdogan, the country is in a state of economic war with the USA that resulted in 25% loss of lira price to US dollar during a week.

Turkey is the fifth largest market for the EU that bought in 2017 goods and services worth €100 billion. According to BIS, only in the first quarter, Spanish banks extended the Turkish counterparts credits worth $80.9, and French banks - $31.9 billion. Monetary and economic crises increase investors’ concerns that they won't be repaid. It makes euro trend less likely to reverse and speeds up EURUSD sales. According to Standard Chartered Bank, the situation is similar to that of 2008, when the markets were trying to learn about a financial establishment something they hadn’t known before, and were dwelling upon the scale of what was going on.

EURUSD risk reversals

Source: Bloomberg

Worries about Turkey make investors look for a safe-heaven, which supports dollar strengthening and draws German bond yields down. As a result, EURUSD uptrend is unlikely to recover, as it needs German yield steady increase. It will signal about the improvement of European economy and a soon start of monetary normalization by the ECB.

Meanwhile, teh Euro-area suffers a lot due to trade wars. Yes, the EU and the USA has negotiated a truce; however, if it ends in the near future, the Euro-area will be challenged by more pain. European exports to the USA in 2017 were worth $437 billion, and imports were worth $284.8 billion. Trump, like in the case with China, has more chances to win than the European Union.

Dynamics of the U.S. imports from the EU and exports to the EU

Source: Wall Street Journal

The factor of Chinese economic slowdown is crucial for euro. If in the period of January-May, 2017, European exports of goods and services to China were 20% up, then during the same period of 2018, they are only 2.5% up. Can one expect EURUSD trend to reverse upwards if the Euro-area’s air supply was cut off? And by whom? By the USA, which followed by the charges with manipulating the currency rate!

Donald Trump seems to be too carried away by his card game. First, he charges China, the EU, the Fed, everybody, with the greenback rise, and then, he announces joyfully that the Turkish lira is flying down to “our strong dollar”! After all, but the major currency pair has crashed below figure 14 base for the first time since July 2017. Besides, as long as EURUSD quotes are below 1.15, euro bears have full control over EURUSD trend.


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Price chart of EURUSD in real time mode

Euro Dismisses Turkish Gambit

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