EUR/USD Forecast: Euro remains vulnerable amid energy crisis, dismal data

EUR/USD has recovered modestly and steadied above 0.9900 during the European trading hours on Monday after having touched its weakest level in nearly two decades at 0.9877 earlier in the day. The disappointing macroeconomic data releases from the euro area and growing fears over a deepening energy crisis in Europe should continue to make it difficult for the shared currency to find demand. 

Late Friday, Gazprom announced that it had halted gas flows to Europe due to oil leakage. Siemens, which maintains the Nord Stream 1 turbines, said that such a leak should not cause a full stoppage of operation and noted that other turbines at the compressor station should have kept the gas flows going. Meanwhile, the White House said Moscow was using energy as a weapon against Europe. 

The data from the euro area showed that Retail Sales contracted by 0.9% on a yearly basis in July, compared to the market expectation for a decrease of 0.7%. Additionally, the Sentix Investor Confidence slumped to -31.8 in September from -25.2 in August.

Commenting on the data, "the economic situation in the Eurozone is clearly worse again," noted Sentix. "The Sentix overall economic index falls by 6.6 points to -31.8 points. This is the lowest level since May 2020 and the recession is deepening."

Meanwhile, the Euro Stoxx 600 Index is down 1.3% on the day, reflecting the risk-averse market atmosphere. Financial markets in the US will be closed in observance of the Labor Day holiday on Monday. Although the trading action is likely to remain muted in the second half of the day, the euro is unlikely to stage a steady rebound.

EUR/USD Technical Analysis

Despite the selloff witnessed during the Asian trading hours, the Relative Strength Index (RSI) indicator on the four-hour chart stays above 30, suggesting that the pair has more room on the downside before turning technically oversold.

0.9900 (psychological level, static level) aligns as first support on the downside. With a drop below that level, EUR/USD could extend its slide toward 0.9875 (daily low) and 0.9800 (psychological level).

On the upside, first resistance is located at 0.9950 (static level) ahead of 0.9975 (20-period SMA, 50-period SMA) and 1.0000 (psychological level, Fibonacci 32.6% retracement of the latest downtrend).