EUR/USD risks a drop to 1.0730 near term – UOB

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest EUR/USD could slip back to the 1.0730 region in the near term.

Key Quotes

24-hour view: We highlighted last Friday that EUR “is likely to break the major support at 1.0790, but the next support at 1.0730 is likely out of reach.” We added, “The downside risk is intact as long as EUR stays below 1.0860 (minor resistance is at 1.0830).” In London trade, EUR broke below 1.0790 and dropped to 1.0764. In NY trade, EUR rebounded briefly to 1.0841 and then dropped back down to 1.0764 before ending the day at 1.0800 (-0.08%). Despite the decline to a fresh 2-1/2-month low, there is no clear increase in downward momentum. That said, there is room for EUR to retest the 1.0765 level today. The major support at 1.0730 is unlikely to come under threat. Resistance is at 1.0815, followed by 1.0840. 

Next 1-3 weeks: We have expected EUR to weaken since the start of last week. After EUR dropped, in our update from Friday (25 Aug, spot at 1.0870), we indicated that “the weakness in EUR is still intact as long as it stays below 1.0890.” We also indicated that “a break of 1.0790 will not be surprising, and the next level to focus on is1.0730.” In London trade, EUR broke below 1.0790 and dropped to a low of 1.0764. We continue to hold the view that EUR could decline, likely to 1.0730, even though it could consolidate for a couple of days first. We will hold the same view as long as the ‘strong resistance’ level at 1.0875 (level was at 1.0890 last Friday) is not breached.