EUR/USD Mid-Session Technical Analysis for August 10, 2018

The Euro is plunging against the U.S. Dollar on Friday, shortly before the U.S. session. The single currency broke sharply following reports that the European Central Bank (ECB) is concerned over the impact of a weak Turkish Lira on European banks.

At 1036 GMT, the EUR/USD is trading 1.1476, down 0.0051 or -0.44%.

According to the Financial Times, the Lira’s depreciation could hurt European banks such as Spain’s BBVA, Italy’s UniCredit, and France’s BNP Paribas in particular.

The reported was discredited by Timothy Ash, an economist covering Emerging Europe, Middle East Africa. He also focuses on Ukraine, Russia and Turkey.

Speaking to CNBC’s “Squawk Box Europe” Friday, Ash said the FT report was “sensationalist” as any losses incurred by the banks would be by local subsidiary branches who had invested using Turkish Lira and not U.S. Dollars.

Ash added however that while banks in Turkey remained in reasonable shape, the country did have a problem with its balance of payments that has occurred because the economy had been allowed to overheat.

“Ultimately now, there is zero credibility in the Central Bank of Turkey and zero credibility in Turkish policy making. Whatever they do, the market doesn’t believe them,” Ash said.

Daily Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed when sellers took out the June 28 bottom at 1.1527 and the June 21 bottom at 1.1509.

The major range is 1.0569 from the week-ending April 14, 2017 and 1.2555 from the week-ending February 16, 2018. Its 50% to 61.8% zone is 1.1562 to 1.1328. The EUR/USD is currently testing this zone. It is controlling the longer-term direction of the Forex pair.

Daily Technical Forecast

Based on the early price action, the direction of the EUR/USD the rest of the day is likely to be determined by trader reaction to a steep downtrending Gann angle at 1.1427.

Holding above 1.1427 will indicate the return of buyers. If the short-covering is strong enough, we could see a move into the former bottoms at 1.1509 and 1.1527. Turning higher for the session could create the momentum needed to challenge a downtrending Gann angle at 1.1587.

A sustained move under 1.1427 will signal the presence of sellers. This will put the EUR/USD in a bearish position with the next major targets a Fibonacci level at 1.1328 and the July 5, 2017 main bottom at 1.1312.