EUR/USD Forecast: Euro could find it difficult to extend rebound

EUR/USD has erased its daily losses after having touched its lowest level since early January below 1.0660 during the Asian trading hours on Monday. Ahead of Tuesday's key inflation data from the US, however, market participants are unlikely to bet against the US Dollar.

On Friday, the University of Michigan's preliminary Consumer Sentiment Survey for February showed that the one-year inflation expectation climbed to 4.2% from 3.9% in January. This reading helped the US Dollar preserve its strength against its rivals ahead of the weekend and forced EUR/USD to end the week in the red.

Early Monday, the US Dollar Index holds its ground and limits EUR/USD's upside. The risk-averse market environment and the uptick in the benchmark 10-year US Treasury bond yield makes it difficult for the pair to gain traction.

There won't be any high-tier macroeconomic data releases and investors will keep a close eye on risk perception. As of writing, US stock index futures were down modestly on the day. In case Wall  Street's main indexes turn north after the opening bell, EUR/USD could extend its recovery and vice versa. Nevertheless, the pair's action is likely to remain confined within key technical levels.

European Central Bank (ECB) President Christine Lagarde and ECB policymaker Fabio Panetta will attend the Eurogroup meeting in Brussels. Later in the day, Federal Reserve Governor Michelle Bowman will speak on "Independence, Predictability, and Tailoring in Banking Supervision and Regulation" at an event organized by the American Bankers Association.

EUR/USD Technical Analysis

EUR/USD has recovered after coming within a touching distance of 1.0645 support (static level) in the Asian session. With this latest action, the Relative Strength Index (RSI) indicator on the four-hour chart edged higher from 30, suggesting that the pair is staging a technical correction.

On the upside, 1.0700 (psychological level, Fibonacci 61.8% retracement of the latest uptrend) aligns as first resistance. In case the pair stabilizes above that level, it is likely to face next hurdles at 1.0725 (20-period Simple Moving Average (SMA)) and 1.0760/70 (Fibonacci 50% retracement, 200-period SMA).

On the downside, 1.0645 (static level) support stays intact before 1.0600 (psychological level). A daily close below that level could open the door for an extended slide toward 1.0535 (static level).