EUR/USD: Focus on Turkey and Eurozone banking stocks, Put value at 16-month high
- For EUR/USD, Turkey's economic plan action, due today, is pivotal.
- Sell-off in Eurozone banking stocks could hurt the common currency.
- The EUR put value has hit a 16-month high, indicating investors are likely expecting a deeper drop in the common currency.
The EUR/USD fell below 1.15 on Friday and hit a 13-month low of 1.1368 in Asia.
The sell-off has been widely blamed on speculation the Eurozone banking sector's vulnerability to the crisis in Turkey could force the European Central Bank to adopt a dovish stance.
As of writing, the EUR/USD pair is trading at 1.1382.
Turkey's President Recep Tayyip Erdogan ruled out an IMF bailout on Friday and also opposed central bank rate hikes despite 27 percent week-on-week slide in the currency.
As a result, the Turkish Lira (TRY) hit a new record low above $7.00 in Asia and the TRY put value also rose to lifetime highs. The continued sell-off in Lira also means the European banking stocks are more likely to open on a negative note and drag the EUR lower.
The options market has already prepared for a further sell-off in the EUR/USD. For instance, the EUR/USD one-month 25 delta risk reversals (EUR1MRR) dropped to -1.55 in Asia - the lowest level since April 2017, indicating a rising demand or rising implied volatility premium for the EUR puts.
So, the common currency could drop below the immediate support of the 200-week moving average of 1.1357. The EUR could regain poise if Tukey's economic plan action announcement, due later today, engineers a sharp bullish reversal in Lira.
EUR/USD Technical Levels
Resistance: 1.1412 (Asian session high), 1.1464 (100-week moving average), 1.1510 (May 26 low).
Support: 1.1357 (200-week moving average), 1.13 (psychological support), 1.1285 (May 2017 high).
EUR1MRR
