EUR/USD Forecast: Euro recovery attempts to remain limited

EUR/USD has been struggling to gather recovery momentum.
The pair could extend correction in case 1.0420 turns into support.
Eyes on the European Commission's updated growth forecasts.

Eren Sengezer FXStreet

EUR/USD has edged higher and steadied above 1.0400 in the early European session after having lost more than 100 pips last week. The risk-averse market environment is not allowing the shared currency to gather strength as investors wait for the European Commission (EC) to release its updated economic forecasts.

Back in February, the EC said that the euro area economy was expected to grow by 4% and 2.8% in 2022 and 2023, respectively. It wouldn't be surprising to see downward revisions to these figures with the Russia-Ukraine conflict weighing heavily on the European economic activity. A gloomy outlook should make it difficult for the euro to attract investors.

On the other hand, European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau said on Monday that a euro that is too weak would go against the ECB's price stability objective. "I expect a decisive June meeting and an active summer," Villeroy further added, helping EUR/USD hold above 1.0400 for the time being.

In the meantime, the Euro Stoxx 600 Index is down 0.5% on the day and US stock index futures are losing between 0.3% and 0.6% in the European morning. In case Wall Street's main indexes decline sharply after the opening bell, the greenback should benefit from safe-haven flows and cap EUR/USD's correction.

The US economic docket will feature the Federal Reserve Bank of New York's Empire State Manufacturing Survey, which is unlikely to have a significant impact on risk perception.

EUR/USD Technical Analysis

The Fibonacci 23.6% retracement of the latest decline and the 20-period SMA on the four-hour chart form the initial resistance region at 1.0420/1.0430. If that area turns into support, additional recovery gains toward 1.0450 (Fibonacci 38.2% retracement) and 1.0480 (Fibonacci 50% retracement) could be witnessed.

Meanwhile, the Relative Strength Index (RSI) is moving sideways near 40, confirming the view that the pair is struggling to gather recovery momentum.

On the downside, 1.0400 (psychological level) aligns as the first support ahead of 1.0370 (static level) and 1.0350 (multi-year low set on May 13).

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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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