EUR/USD Forecast: Euro eyes fresh 20-month lows as tensions escalate

EUR/USD has started the new week with a large bearish gap.
Geopolitical tensions continue to escalate as the west ramps up sanctions against Russia.
The dollar is likely to continue to outperform its rivals in the risk-averse market environment.

Eren Sengezer FXStreet

EUR/USD has opened with a large bearish gap on Monday with investors seeking refuge following the weekend's concerning geopolitical developments. The pair trades deep into negative territory below 1.1200 early Monday and it could find it difficult to shake off the bearish pressure in case safe-haven flows continue to dominate financial markets.

Numerous western nations, including the US, the EU and the UK, announced additional sanctions against Russia over the weekend and decided to exclude some Russian financial institutions from the global payment system - SWIFT. On Sunday, Russian President Vladimir Putin said that he had put deterrence forces, including nuclear arms, on the highest threat level and Belarus reportedly decided to join forces with Russia in invading Ukraine.

On Monday, delegations from Russia and Ukraine are expected to meet for talks on the Ukraine-Belarus border. It's difficult to say whether or not sides will be willing to end the conflict and look for a diplomatic solution. In case that were to happen, EUR/USD could stage a decisive rebound. On the flip side, a lack of progress and a further escalation of the crisis after Monday's meeting could force the common currency to face additional selling pressure.

The economic calendar will not be offering any high-impact data releases on Monday and the risk perception will remain as the primary market driver. Last week's action shows that the dollar is preferred over the European currencies as a safer option. The US Dollar Index, which tracks the greenback's performance against a basket of six major currencies, was last seen rising more than 0.5% on the day above 97.00.

EUR/USD Technical Analysis

EUR/USD is attempting to fill the opening gap early Monday. The pair is facing interim resistance at 1.1200 (psychological level) ahead of 1.1260 (former support, static level) and 1.1300 (psychological level).

On the downside, short-term support seems to have formed at 1.1150 during the Asian session. In case a four-hour candle closes below that level, EUR/USD could extend its slide toward 1.1100 on its way to a fresh 20-month low.

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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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