EUR/USD Forecast: Euro could extend rebound if 1.0870 is confirmed as support

EUR/USD has staged a technical correction to start the week.
Mixed comments from ECB officials could limit the Euro's upside.
The pair could edge higher in case 1.0870 is confirmed as support.

Eren Sengezer FXStreet

EUR/USD has started the new week on a firm footing and erased a small portion of last week's losses. The pair could extend its correction in case buyers continue to defend 1.0870.

The broad-based US Dollar strength amid risk aversion weighed heavily on EUR/USD ahead of the weekend and the pair touched its lowest level in a month below 1.0850 on Friday. Early Monday, Euro Stoxx 50 trade in positive territory and US stock index futures rise between 0.25% and 0.35%, reflecting an improving market mood.

Over the weekend, European Central Bank (ECB) officials delivered a mixed message regarding the policy outlook. ECB Vice President Luis de Guindos told an Italian newspaper that they have now entered the home stretch of the monetary policy tightening path. On a hawkish note, “the ECB may need to raise interest rates longer than previously thought to help tame inflationary pressures," policymaker Peter Kazimir said.

March Industrial Production data will be featured in the European economic docket, which is unlikely to trigger a noticeable market reaction. Later in the day, the Federal Reserve Bank of New York's Empire State Manufacturing Survey will be the only data releases from the US.

In the absence of high-tier macroeconomic events, market participants will pay close attention to risk perception and comments from central bank officials. In case ECB policymakers adopt a cautious tone with regard to further tightening of the policy, the Euro could have a hard time outperforming the US Dollar (USD). On the other hand, a positive opening in Wall Street's main indexes followed by a risk rally should hurt the USD in the near term and help the pair stretch higher.

EUR/USD Technical Analysis

The Fibonacci 38.2% retracement of the latest uptrend aligns as a key pivot level at 1.0870. If EUR/USD stabilizes above that level by using it as support, it could extend its upward correction to 1.0900 (psychological level, 20-period Simple Moving Average (SMA) on the four-hour chart) and 1.0950/1.0960 (Fibonacci 23.6% retracement, 200-period SMA).

On the downside, interim support seems to have formed at 1.0850 ahead of 1.0800 (psychological level, Fibonacci 50% retracement).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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