Further downside in EUR/USD is expected to meet a tough contention around 1.1010, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: After EUR fell to 1.1173 and rebounded, we highlighted yesterday that “the underlying tone still appears to be soft” and we held the view that “there is a chance for EUR to retest the 1.1175 level before the risk of a more sustained rebound increases.” Instead of testing 1.1175, EUR broke below this level and plunged to a low of 1.1117. The sharp selloff appears to have room to extend. However, oversold conditions suggest a sustained decline below 1.1090 is unlikely. The major support at 1.1010 is also unlikely to come under threat. Resistance is at 1.1170, followed by 1.1200. 

Next 1-3 weeks: After holding a positive stance in EUR for more than a week, we highlighted yesterday that “upward momentum has eased considerably.” However, we added, “only a clear breach of 1.1160 would suggest that EUR is not strengthening further.” In NY trade, EUR not only broke below 1.1160, but it also sold off sharply and ended the day lower by 0.63% (1.1128). The 0.63% decline is the largest 1-day drop in two months. Short-term downward momentum has increased, but while EUR could weaken further, any decline is likely to face solid support at 1.1010. Another way to look at it is that any EUR weakness is likely a corrective pullback, and not a major reversal. The downward pressure will remain intact unless EUR breaks below the ‘strong resistance’ level, currently at 1.1235.