A deeper drop could drag EUR/USD to the 1.0515 zone in the next few weeks, note UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.
24-hour view: The sharp selloff that sent EUR plunging to a 6-month low of 1.0629 came as a surprise (we were expecting EUR to trade in a range). While the decline appears to be overdone, the weakness in EUR has not stabilised. Today, EUR could decline further, but it is unlikely to break clearly below 1.0600. Resistance is at 1.0665, a break of 1.0690 would mean that EUR is not weakening further.
Next 1-3 weeks: On Tuesday (12 Sep, spot at 1.0750), we indicated that “the weakness in EUR has stabilised”, and we held the view that EUR “is likely to trade in a range between 1.0690 and 1.0820.” Yesterday (14 Sep, spot at 1.0730), we highlighted that “Looking ahead, if EUR breaks and stays below 1.0690, it will increase the risk of it dropping towards the major support at 1.0635.” In London trade, not only did EUR break below 1.0690, it also dropped slightly below May’s low of 1.0635 (low has been 1.0629). The sharp increase in momentum suggests EUR has resumed its weakness. However, it remains to be seen if there is enough momentum to carry EUR lower March’s low near 1.0515. In order to keep the momentum going, EUR must stay below 1.0730, the current ‘strong resistance’ level. This level will move lower in the coming days.