EUR/USD extends downtrend toward 1.1445 as UOB flags further weakness

EUR/USD consolidated between 1.1505 and 1.1555 on Tuesday, settling at 1.1534, after last week's drop to a low of 1.1516. UOB Group maintains a bearish outlook targeting further weakness toward 1.1445, with the pair needing to stay below 1.1600 for the downtrend to remain intact.

"The sharp and rapid decline appears excessive, but there are no signs of stabilisation yet," Quek Ser Leang and Lee Sue Ann, strategists at UOB, said in a note dated June 10. "As long as 1.1600 holds, EUR could drop toward 1.1445."

The euro has been under pressure as the dollar strengthens on expectations that the Federal Reserve will keep interest rates elevated. US inflation data due Wednesday is expected to show consumer prices rose further in May, reinforcing the case for a hawkish Fed stance that has supported the greenback. The divergence between US and eurozone economic momentum has been a key driver of the pair's decline.

A sustained break below 1.1445 would open the door to the 1.1390-1.1410 support zone on a multi-month horizon, UOB said. That would represent the euro's weakest level against the dollar since early 2023, reflecting the economic divergence between a resilient US economy and a eurozone facing slower growth. The European Central Bank's expected rate hikes may provide some support, though strategists said the pace of tightening may not be enough to reverse the trend.

The 1.1555 level serves as near-term resistance, with a break above that suggesting selling pressure may be easing. However, UOB's strategists said any such move would likely be temporary as long as the pair stays below 1.1600. On the downside, 1.1505 marks immediate support ahead of the key 1.1445 target. A break below that level would confirm the next leg lower toward the 1.1390-1.1410 zone.

The broader outlook for EUR/USD hinges on the interest rate paths of both the Federal Reserve and the European Central Bank. Traders will watch Wednesday's US CPI release for further clues on the Fed's next move. A stronger-than-expected reading could accelerate the dollar's gains and push EUR/USD toward the 1.1445 target sooner.

This article is for informational purposes only and does not constitute investment advice.