EUR/USD: Near term consolidation - OCBC

Euro (EUR) gains slowed overnight, in line with our caution. EUR was last at 1.18 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Bias remains to buy dips

"Technical readings and comments from ECB officials earlier likely marked the first hint of concern or slight discomfort around the EUR's pace of appreciation. We noted that several ECB officials made remarks on currency this week. ECB Vice President Guindos said that a rise in the euro beyond $1.20 could make things 'much more complicated', though he sees current levels as no cause for concern. ECB's Simkus also commented that the speed at which the EUR is rising is something the ECB must monitor particularly carefully."

"That said, there are also ECB officials who do not seem overly concerned. ECB's Centeno said, 'we need to think about the current exchange rate as reflecting the strength of the euro, what's going on globally,' He also said 'we're also pushing a lot to increase the international role of the euro debt. It will bring more investors to Europe. It will increase interest in the euro so that's good'. Muller signalled he is less concerned about the latest movements in EUR while Nagel said that EUR has averaged 1.1829 since it was introduced in 1999, and policymakers 'are taking into account all the factors that are leading to higher and lower inflation and this is the relevant way we should see it'."

"Our constructive outlook on EUR remains intact though we see risks of slower pace of appreciation in the interim due to event risks - recent ECB comments may imply an implicit cap, 9 th July truce deadline and from a positioning point of view (where EUR is stretched). Bias remains to buy dips. Bullish momentum on daily chart intact but shows tentative signs of fading while RSI shows signs of turning lower from overbought conditions. Next resistance at 1.1820 levels, before 1.1920 levels. Support at 1.1630, 1.1550 (21 DMA). We continue to caution for slower pace of gains or even some consolidation in the interim."