EUR/USD Forecast: Euro breaks below key level, eyes 1.0260 as next target

EUR/USD has pierced through key supports and touched its weakest level since December 2002 near 1.0300. The next bearish target for the pair aligns at 1.0260 but the oversold conditions suggest that there could be a technical correction before the next leg lower.

EUR/USD fluctuated in a relatively tight range on Monday as market conditions remained thin due to the Independence Day holiday. With trading volumes returning to normal levels, the greenback started to gather strength against its major rivals and the US Dollar Index climbed to its highest level in nearly two decades near 106.00.

The latest comments from European Central Bank officials seem to be making it difficult for the shared currency to find demand. ECB Governing Council member Madis Muller and ECB Vice President Luis de Guindos both said on Monday that a 25 basis points rate increase in July would be appropriate. 

Meanwhile, the souring market mood puts additional weight on the euro's shoulders on Tuesday. US stock index futures, which spent the Asian session in positive territory, were last seen losing between 0.5% and 0.6%, confirming the negative tilt in sentiment.

In case safe-haven flows continue to dominate the financial markets following Wall Street's opening bell, the pair is likely to stay under bearish pressure. The US economic docket will feature May Factory Orders data later in the day but the risk perception should continue to drive EUR/USD's action.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart dropped below 30, suggesting that the pair has turned technically oversold. The last time the RSI fell below 30 on June 30, the pair staged an 80-pip rebound before continuing its downtrend.

In case the pair makes a technical correction, 1.0350 (previous support) aligns as the first hurdle ahead of 1.0380 (static level) and 1.0400 (psychological level).

If 1.0350 is confirmed as resistance, 1.0300 (psychological level) forms initial support before 1.0260 (static level from December 2002) and 1.0200 (psychological level).