This week, the single currency has once again demonstrated vulnerability due to its proximity to the epicentre of problems. The EURUSD pair lost about 1.8% in last two days and fell to the area of 13-months lows to the dollar because of the devaluation of the Turkish lira.
The diplomatic conflict between the US and Turkey has increased the pressure on the Turkish currency, which has experienced free fall and has lost almost 22% by the time of writing, deeply in the area of historical lows. This devaluation spreads its influence beyond the country on fears that the banking sector in the euro-region would suffer due to a sharp impairment of Turkish assets and fears of mass defaults on the debts to banks of local companies in foreign currency. In his speech Turkish president Erdogan urged the nation to exchange foreign currency and gold for lira. That rhetoric has only increased the collapse of the Turkish currency.
The collapse of the Turkish lira led the euro to fall by more than 1% during Friday, once again recalling the vulnerability of the currency to the problems of a number of countries. This situation reminded of the impact that the Greek crisis had had on the euro several years ago. But Greece is one of the countries, which belongs to the Euro-region. The impact of Turkey’s problems on the euro may deter those who consider the euro as a diversified alternative to the dollar.
Technical analysis suggests that the EURUSD exit to the downside from the trading range can increase pressure in the coming days. Under these conditions the bears for EURUSD could aim to the previous levels of support at 1.1130, or even lower. The worse scenario is a decrease in the area of 1.07 in case a reversal figure “head-and-shoulders” works out.