Torrid times for euro look unlikely to ease soon

There is little sign that the euro is about to turn around its rough patch against the dollar as concerns over the exposure of the region’s banks to Turkey ratchet up and bund yields slide back towards the lower end of their recent range.

The common currency broke below support at $1.1500 on Friday to touch its lowest point since July last year following a report that the European Central Bank considers UniCredit as particularly vulnerable to Turkey’s market woes. While there isn’t a large buildup of long positions to be squeezed out, a change in fortunes may be unlikely until bund yields begin to rise more meaningfully, according to Societe Generale.

“ECB concerns grow over EU banks’ Turkey exposure [which] has provided the catalyst for EUR/USD to fall out of the bottom of its threemonth 1.1500-1.1850 range,” strategist Kit Juckes wrote in a note to clients. “We would still rather own NOK and SEK than EUR, or GBP.”

The euro has the potential to drop further if there is more evidence of spillover from the rout in the lira to the eurozone banking sector. Credit Agricole strategist Valentin Marinov sees a break of $1.14 potentially “opening the way” to a test of $1.1360-$1.1370.

Traders face eurozone second-quarter gross domestic product data tomorrow, as well as industrial production data for June. The final July CPI reading for the region is scheduled for Friday.

A host of economic numbers – including US retail sales, leading indicators and consumer sentiment – are due this week, which could also dominate proceedings

Concerns grow over EU banks’ Turkey exposure . . . a catalyst for EUR/ USD to fall beneath its three-month range KIT JUCKES Strategist

for euro-dollar. The euro slid 0.9 per cent to $1.1429 in London, on course for its third consecutive weekly decline.

Three-month risk reversals on the pair show traders are the most bearish since April 2017. German 10-year yields fell as much as five basis points to 0.32 per cent.

Bloomberg