EUR/USD Forecast: Euro needs to clear 1.1350 to extend recovery

EUR/USD has gathered bullish momentum early Tuesday and climbed toward mid-1.1300s with risk flows returning to markets. The pair needs to clear the near-term resistance that seems to have formed at 1.1350 in order to extend its rebound.

The improving market mood is making it difficult for the dollar to outperform its rivals while allowing the shared currency to find demand. 

According to Russia's Ifax news agency, Russia's Defense Ministry announced that Russian troops are returning to their permanent deployment points as the combat training activities are completed. With the initial market reaction to this development, US stocks futures indexes rose sharply and were last seen gaining between 1% and 1.5%. The US Dollar Index erased a large portion of Monday's gains and retreated to 96.00.

Later in the session, Eurostat will release the fourth-quarter Employment Change and Gross Domestic Product growth figures. These data are unlikely to trigger a noticeable market reaction. In the second half of the day, the January Producer Price Index (PPI) from the US will be looked upon for fresh impetus.

In case risk flows continue to dominate the financial markets, EUR/USD could preserve its bullish momentum. Rising US Treasury bond yields, however, could help the greenback stay resilient against its rivals and limit the pair's upside. The benchmark 10-year US T-bond yield was last seen rising more than 2% on the day at 2.03%.

EUR/USD Technical Analysis

EUR/USD was last seen trading slightly below the 1.1350 resistance level, where the Fibonacci 38.2% retracement of the latest uptrend and the 200-period SMA on the four-hour chart meet. In case the pair rises above that level and starts using it as support, it could target 1.1400 (psychological level, Fibonacci 23.6% retracement).

On the downside, 1.1320 (100-period SMA) aligns as the first support level before 1.1300 (psychological level, Fibonacci 50% retracement) and 1.1260 (Fibonacci 61.8% retracement).

Meanwhile, the Relative Strength Index (RSI) indicator has rebounded to 50, suggesting that sellers are struggling to remain in control of the pair's action.