EUR/USD Forecast: Euro shows potential for additional gains

EUR/USD has retreated to the 1.1050 area after having reached its highest level in over a year near 1.1100 on Wednesday. Although the US Dollar (USD) holds its ground early Thursday following the latest selloff, the pair's technical outlook suggest that it has the potential to continue to stretch higher in the short term.

The positive opening in Wall Street caused the USD to come under renewed selling pressure on Wednesday and the US Dollar Index (DXY) came within a touching distance of 101.00. As the benchmark 10-year US Treasury bond yield staged a rebound later in the American session to snap a two-day losing streak, however, the USD erased a portion of its losses and capped EUR/USD's upside.

Early Thursday, US stock index futures are up between 0.3% and 0.9%. Ahead of the opening bell, market participants will pay close attention to the US Bureau of Economic Analysis' first estimate of the real Gross Domestic Product (GDP) data, which is forecast to show an annualized expansion of 2%.

This data is unlikely to significantly influence the market pricing of a 25 basis points (bps) Federal Reserve (Fed) rate hike at next week's policy meeting. Nevertheless, a weaker-than-expected growth reading for Q1 could revive fears over the US economy tipping into recession. In turn, the "policy pivot" narrative could gain traction and trigger a fresh leg off USD selloff.

On the other hand, an upbeat GDP print should help the USD stay resilient against its rivals. Nevertheless, the USD's gains are likely to remain limited if risk flows dominate the financial markets.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart holds near 60, suggesting that EUR/USD has more room on the upside before turning technically overbought. Moreover, the pair closed the last six four-hour candle above the 20-period Simple Moving Average, reflecting the buyers' willingness to retain control.

On the upside, 1.1070 (end-point of the latest uptrend) aligns as initial resistance ahead of 1.1100 (psychological level, 13-month high set on Wednesday) and 1.1160 (static level from March 2022).

1.1025 (20-period SMA) forms dynamic support before 1.1000 (psychological level, static level). A four-hour close below the latter could discourage buyers and open the door for an extended slide toward 1.0970 (100-period SMA).