24-hour view: We expected EUR to weaken further yesterday. However, we held the view that “the major support at 1.1010 is highly unlikely to come under threat.” Our view was not wrong, as EUR dropped to 1.1019 and then rebounded to end the day little changed at 1.1053 (+-0.08%).  While there is no clear increase in downward momentum, the risk for EUR is still on the downside. Today, EUR could dip to 1.1010, but a sustained decline below this level is unlikely. The next support at 1.0965 is not expected to come into view. On the upside, if EUR breaks above 1.1100 (minor resistance is at 1.1075), it would mean that the downside risk has faded.

Next 1-3 weeks: In our latest narrative from last Friday (21 Jul, spot at 1.1135), we indicated that the recent EUR strength had ended. We held the view that “the pullback in EUR could extend, but any decline is expected to face solid support at 1.1010.” Our view of a deeper pullback was not wrong, as EUR dropped to a low of 1.1019 yesterday. While downward momentum has not improved much, there is a chance for EUR to dip below 1.1010. At this stage, the probability of EUR dropping to the next major support at 1.0965 is not high. Overall, only a breach of 1.1135 (‘strong resistance’ previously at 1.1165) would indicate that the downside risk has faded.