24-hour view: We did not anticipate the sharp drop in EUR that sent it to a low of 1.0916 (we were expecting it to trade sideways). While the rebound from the low has dented the downward momentum somewhat, EUR could drop to 1.0900 before stabilisation is likely. The next major support at 1.0865 is likely out of reach today. Resistance is at 1.0970; if EUR breaks above 1.0995, it would indicate that the weakness in EUR has stabilised.

Next 1-3 weeks: We turned negative in EUR in the middle of last week (see annotations in the chart below). After EUR rebounded strongly in early Asian trade yesterday (02 Aug, spot at 1.1010), we indicated that “the chance of EUR dropping to 1.0920 this time around is slim.” We added,  “However, only a breach of 1.1070 would indicate that the current downward pressure has faded.” We did anticipate EUR to drop sharply and broke below 1.0920 (low has been 1.0916 in NY trade). The boost in momentum suggests EUR could weaken further to 1.0865. On the upside, the ‘strong resistance’ level has moved lower to 1.1020 from 1.1070.