EUR/USD could extend the pullback to 1.2055 – UOB

FX Strategists at UOB  Group noted spot could prolong the decline to the mid-1.2000s in the next weeks.

Key Quotes

24-hour view: “We expected a lower EUR yesterday but the anticipated “strong support at 1.2130” did not materialize as EUR dropped sharply to test the major 1.2090/95 level (low of 1.2094 during NY hours). The subsequent weak daily closing suggests it is too soon to expect a sustained rebound. From here, a dip below the 1.2090/95 level would not be surprising but in view of the oversold conditions, any decline could be limited to the next support at 1.2055. Resistance is at 1.2135 but only a break above 1.2175 would indicate that the current weakness has stabilized”.

Next 1-3 weeks: “We highlighted yesterday (26 Apr, spot at 1.2170) that “a clear break of 1.2153 would suggest that EUR is ready for a much deeper down-move in the weeks ahead”. EUR not only cracked this level but also managed to test the next major support near 1.2090 (note that 1.2092 was the high in 2017). The odds for a shift to a bearish phase have increased considerably but we prefer to wait for a daily closing below 1.2090. A shift to a bearish phase would have an immediate target of 1.1960. Looking back, while we first indicated that the “immediate pressure has shifted to the downside” on Monday, the decline since then has been more ‘impulsive’ than expected. From here, a clear break of 1.2090 would suggest that the 1.2555 high seen in February could turn out to be a significant mid to long-term top. In the meanwhile, we continue to expect EUR to stay under pressure unless it can reclaim the ‘key resistance’ that is currently at 1.2245 (level was previously at 1.2270)”.