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Euro Recovers Early-Week Losses Ahead of Key Inflation Data

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Euro Recovers Early-Week Losses Ahead of Key Inflation Data

The euro is strengthening after declining earlier in the week. During the first trading sessions the single currency remained under pressure, but was later followed by a sharp rebound. The recovery was supported by easing geopolitical tensions in the Middle East, where signs have emerged of a slowdown in the escalation surrounding Iran. The reduction in geopolitical risks has weakened demand for safe-haven assets and allowed European currencies to partially recover their losses.

At the same time, market participants remain cautious as important inflation figures from both the eurozone and the United States are due to be released soon.

Inflation data remain a key factor shaping expectations for the future policy path of central banks. Higher inflation in the US could strengthen the dollar by reinforcing expectations that the Federal Reserve will maintain a tight monetary policy stance. Meanwhile, accelerating inflation in Europe could support the euro, as it would strengthen arguments for the European Central Bank to keep interest rates elevated for a longer period.

Overall, the current movement in major euro pairs appears largely corrective, while the next directional move will likely depend on the upcoming macroeconomic releases.

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EUR/USD

The EUR/USD pair began the current trading week with a price gap, after which it tested an important support level near 1.1510. However, the sharp decline attracted buyers and the price soon returned above 1.1600. Technical analysis suggests that the pair may advance towards the 1.1700–1.1740 area, as a bullish engulfing pattern has formed on the daily timeframe.

If the price settles below 1.1600, a renewed test of the recent low at 1.1510 may follow.

Key events for EUR/USD:

  • today at 09:00 (GMT+2): Germany Consumer Price Index (CPI);
    today at 12:30 (GMT+2): Germany 10-year government bond auction;
  • today at 14:30 (GMT+2): US Consumer Price Index (CPI).

EUR/JPY

A renewed test of the key support level at 182.40, observed at the beginning of the week, triggered a sharp rebound and pushed the pair above 183.00. If the news flow from the eurozone remains supportive, the pair could test the next important resistance levels in the 184.30–184.70 range.

A decisive move below 183.40 would invalidate the bullish scenario.

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Key events for EUR/JPY:

  • today at 14:30 (GMT+2): speech by Bundesbank representative Mauderer;
  • today at 01:30 (GMT+2): Japan BSI Large Manufacturing Conditions Index.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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Crypto World

Aave V3 Avoided Unrecovered Bad Debt From 2023 to 2025: Study

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Aave V3 Avoided Unrecovered Bad Debt From 2023 to 2025: Study

A Bank of Canada staff paper found that Aave V3 reported zero non-performing loans in 2024, with overcollateralization and automated liquidations helping prevent lender losses in its Ethereum lending market.

Using transaction-level data from Jan. 27, 2023, to May 6, 2025, the study found that positions were typically liquidated before collateral values fell below outstanding debt, helping contain lender losses across the sample.

But the model came with a tradeoff, the paper said. While it protected lenders from unrecovered losses, it also shifted risk onto borrowers and constrained capital efficiency compared with traditional lending systems.

According to the paper, Aave V3’s design relies on automated risk controls rather than traditional underwriting, requiring borrowers to post more collateral than they borrow and liquidating positions when they breach risk thresholds.

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Daily lending earnings, circulating supply, and borrowing volumes (USD) on Aave V3. Source: Bank of Canada

Recursive leverage fueled borrowing demand

According to the paper, Aave V3’s lending activity was not driven solely by users seeking liquidity. It found that recursive leverage accounted for over 20% of total borrowed volume and 8.2% of borrowing transactions during the sample period. 

Recursive leverage involves repeatedly borrowing against collateral, redeploying the borrowed assets as new collateral and borrowing again to amplify exposure.

Related: Aave V4 goes live on Ethereum after governance vote clears rollout

The study said the dynamic made borrowers more exposed when markets turned. According to the paper, liquidations on Aave V3 tended to occur in concentrated waves, with four assets accounting for 90% of total liquidated value. 

This includes Wrapped Ether (WETH), Wrapped Staked Ether (wstETH), Wrapped Bitcoin (WBTC) and Wrapped eETH (weETH).

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The paper estimated that borrower losses during major liquidation events could be significant. It said liquidation fees typically ranged from 5% to 10% of liquidated value, while missed gains from subsequent price recoveries pushed combined losses to about 10% to 30% in some cases. 

The staff paper suggested that while the design for Aave V3 helped prevent unrecovered bad debt in the sample, it did so by exposing borrowers to abrupt losses when collateral prices fell sharply. 

Cointelegraph reached out to Aave for comment but did not receive a response before publication.

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