EUR/USD Forecast: Euro could extend downward correction if 1.0520 support fails

EUR/USD has started to edge lower early Friday after having tested 1.0600 on Thursday. The risk-positive market environment helps the shared currency stay resilient for the time being but the greenback could continue to gather strength and weigh on the pair in case US Treasury bond yields gain traction.l

On Thursday, the 10-year US Treasury bond yield declined for the second straight day and caused the dollar to lose interest. Meanwhile, the Swiss National Bank's unexpected 50 bps rate hike allowed the CHF to capture safe-haven flows and made it difficult for the greenback to find demand.

On the other hand, citing sources familiar with the matter, Bloomberg reported on Thursday that the European Central Bank (ECB) was planning to sell its holdings of lower-yielding European bonds to buy higher-yielding ones. In turn, the 10-year German bond yield climbed to its highest level since early 2014, providing an additional boost to the shared currency.

Early Friday, the 10-year US T-bond yield is rising while the German 10-year yield is edging lower, opening the door for a downward correction in EUR/USD.

Later in the session, May Industrial Production data will be featured in the US economic docket. FOMC Chairman Jerome Powell is scheduled to deliver a speech as well. Powell, however, is unlikely to touch on the policy outlook ahead of the semi-annual testimony before the US Senate next week. Ahead of the weekend, the currency's action is likely to be impacted by yields.

EUR/USD Technical Analysis

The pair was last seen trading slightly below 1.0520, where the Fibonacci 38.2% retracement of the latest downtrend is located. In case the pair starts using that level as resistance, 1.0460 (Fibonacci 23.6% retracement, 20-period SMA) could be seen as the next bearish target ahead of 1.0400 (static level, psychological level).

On the upside, 1.0560 (Fibonacci 50% retracement) aligns as interim resistance before 1.0600 (Fibonacci 61.8% retracement, 200-period SMA) and 1.0640 (100-period SMA).

Meanwhile, the Relative Strength ındex (RSI) indicator on the four-hour chart is now moving sideways slightly above 50, suggesting that the pair has failed to gather bullish momentum.