EUR/USD Forecast: Bears retain control, looking for sub-1.0600 levels

EUR/USD Current price: 1.0635

• Geopolitical tensions in the Middle East lead the way at the beginning of the week.
• Upbeat United States Retail Sales gave a near-term boost to the US Dollar.
• EUR/USD trades near the 2024 low and has room to extend its slump.

The EUR/USD pair recovered modestly from 1.0621, the fresh 2024 low set last week, but resumed its decline ahead of Wall Street’s opening, now hovering in the 1.0630 price zone. The US Dollar came under mild pressure amid mounting geopolitical tensions in the Middle East after Iran launched an aerial attack on Israel over the weekend. Markets fear Israel’s retaliation, despite the United States (US) warning Israeli Prime Minister Benjamin Netanyahu that the country would not support a counterattack.

Stock markets remained on the back foot throughout the Asian session, although European indexes fought back, holding on to modest gains and leading to a tepid advance in US futures. American indexes closed Friday in the red amid poor earnings reports from big banks and speculation the Federal Reserve (Fed) will maintain interest rates higher for longer.

Meanwhile, European Central Bank (ECB) Governing Council member Gediminas Šimkus hit the wires and said there was a greater than 50% probability of more than three rate cuts this year. However, he added that geopolitical concerns could result in a delay in the first rate cut from June to July.

Data-wise, the Eurozone released February Industrial Production, which rose 0.8% MoM but was down 6.4% from a year earlier. As for the US, the country published March Retail Sales, which rose 0.7% MoM, much better than the 0.3% anticipated. Also, the April NY Empire State Manufacturing Index printed at -14.3, improving from -20.9 in March but missing expectations of -9. Upbeat Retail Sales provided a near-term impulse to the USD.

EUR/USD short-term technical outlook

The daily chart for EUR/USD shows the risk remains skewed to the downside. The pair develops below all its moving averages, with the 20 Simple Moving Average (SMA) accelerating south below the longer ones, all beyond the 1.0800 mark. At the same time, technical indicators stand near their recent lows, lacking directional strength yet far from suggesting downward exhaustion.

In the near term, and according to the 4-hour chart, the bearish case is firm. Technical indicators resumed their declines within negative levels after correcting extreme oversold conditions. At the same time, the 20 SMA heads south almost vertically, well above the current level while below also bearish longer ones.

Support levels: 1.0620 1.0575 1.0530

Resistance levels: 1.0665 1.0700 1.0745