EUR/USD risks a sustained drop once 1.0850 is cleared, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at OB Group.

Key Quotes

24-hour view: “We did not anticipate EUR to drop sharply to a low of 1.0898 yesterday (we were expecting it to trade sideways). Strong downward momentum is likely to lead to further EUR weakness even though oversold conditions suggest it is unlikely to break the major support at 1.0850 today (minor support is at 1.0880). On the upside, any rebound is likely to stay below 1.0960 (minor resistance is at 1.0940).”

Next 1-3 weeks: “Two days ago (10 May, spot at 1.0960), we noted that ‘short-term downward momentum appears to be building’ and we were of the view that EUR ‘has to break and stay below 1.0920 before a sustained decline is likely’. Yesterday, EUR lurched lower and plummeted to a low of 1.0898 before closing at a 1-month low of 1.0914 (-0.60%). The rapid increase in momentum indicates that EUR is likely to head lower in the coming days. The level to watch is 1.0850, as a break of this key support could potentially trigger a sharp and rapid drop in EUR. Overall, we hold a negative EUR view now as long as it does not break above 1.0990 (‘strong resistance’ level previously at 1.1035). Looking ahead, the next significant support below 1.0850 is at 1.0800.”