Euro: Downside risk remains in focus against US Dollar – UOB

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann highlight an unexpectedly sharp EUR/USD drop to 1.1577, with the pair closing weaker at 1.1584. They see scope for further downside but doubts a quick test of 1.1550 due to oversold conditions. Short term, resistance at 1.1600/1.1625 caps rebounds, while the broader view still flags upside targets at 1.1800 and 1.1850.

Euro pressured but oversold

"24-HOUR VIEW: We did not expect the sharp drop in EUR last Friday that sent it plummeting to a low of 1.1577 (we had expected range-trading). The sharp decline appears excessive, but with no signs of stabilisation yet, EUR could decline further. That said, the major support at 1.1550 is likely out of reach. Note that there is another support level at 1.1570. Resistance is at 1.1600; a breach of 1.1625 would indicate that the decline is stabilising."

"1-3 WEEKS VIEW: Last Friday (28 Aug, spot at 1.1650), we revised our view from positive to neutral. We indicated that “upward momentum has eased,” and EUR “appears to have entered a range-trading phase between 1.1600 and 1.1685.” While our shift in view was timely, we did not expect EUR to quickly break below 1.1600, as it plummeted to a low of 1.1577. EUR closed on a weak note at 1.1584, down by 0.58%. The rapid increase in downward momentum suggests EUR could decline further. That said, oversold short-term conditions suggest the major support at 1.1550 may not come into view so soon. To keep the momentum going, EUR must hold below 1.1650 (‘strong resistance’ level)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)