EUR/USD Forecast: bearish bias remains, recovery likely to be capped near mid-1.1600s

The EUR/USD pair built on its post-ECB minor corrective bounce and ended higher for the second consecutive session, in a rather subdued trading action on Monday. The US Dollar bulls held on the defensive amid escalating US-China trade tensions and eventually extended some support to the major. China retaliated to the latest round of US tariffs of 25% on around $50 billion worth of Chinese imports by slapping duties on high-value American export products and suspending all previous trade agreements with Trump's administration.

Trade fights between the world's two largest economies remained a dominant theme in the market after the US President Donald Trump threatened to impose a 10% tariff on $200 billion of Chinese goods, taking the two powers a step closer to a full-blown trade war. The pair, however, has failed to capitalize on the broader USD weakness and has held with only modest gains just above the 1.1600 handle. 

From a technical perspective, the pair has found acceptance above 23.6% Fibonacci retracement level of its post-ECB slump but any subsequent up-move seems more likely to be capped near the 1.1650-60 confluence region, comprising of 38.2% Fibonacci retracement level and 100-hour SMA. 

On the flip side, the 1.1610-1.1600 region now seems to protect the immediate downside, which if broken might accelerate the fall back towards 1.1570 horizontal support. A follow-through weakness might turn the pair vulnerable to head back towards retesting the key 1.1500 psychological mark, or 10-month lows set on May 29th.