A near-term top could have emerged at 1.1275 – UOB

Markets Strategist Quek Ser Leang at UOB Group comments on the ongoing price action and prospects for EUR/USD.

Key Quotes

Our last Chart of the Day was from about 2 weeks ago, on 13 July 2023. At that time, when EUR/USD was trading at 1.1140, we highlighted that weekly MACD appeared poised to crossover into positive territory, and we were of the view that it boded well for further EUR/USD strength. However, we noted, “It remains to be seen if EUR/USD has enough momentum to reach the solid resistance level at 1.1485 in the next couple of months.” 

We also stated that “In order to keep the momentum going, EUR/USD must stay above the daily trendline support, currently near 1.0880.” After our update, EUR/USD continued to rise and touched a high of 1.1275 in mid-July. EUR/USD pulled back sharply from the high and yesterday (28 July 2023), it plunged below the previous high of 1.1010. Today, EUR/USD appeared to have dropped slightly below the trendline indicated above (the trendline at 1.0865 is also close to the 55-day exponential moving average). 

While it is premature to expect a major bearish reversal, the break of the trendline and the 55-day exponential moving average indicates that the 1.1275 high could be a top for now. In other words, 1.1275 is unlikely to come back into view in the next month or so. That said, the pace of any decline is likely to be slow as there are several significant support levels* that are relatively close to each other.

*On the weekly chart, the rising trendline connecting the lows of Sep last year and May this year is at 1.0880. This level is also close to the 21-week exponential moving average. On the daily chart, the top of the daily Ichimoku cloud support is at 1.0865 now. This level is not far above the early July low of 1.0832. Further down, the 55-week exponential moving average is currently at 1.0770.