EUR/USD Forecast: Euro to remain bullish as long as 1.1040 support holds

EUR/USD has struggled to preserve its bullish momentum after having advanced to its highest level in more than two weeks at 1.1138 on Thursday. Although the pair stays on the back foot early Friday, it could regain its traction as long as buyers continue to defend the 1.1040 support. 

The improving market mood helped the shared currency gather strength on Thursday. Additionally, the sharp upsurge in the EUR/GBP pair after the Bank of England (BOE) adopted a cautious on future rate hikes in its policy statement provided an additional boost to the euro. 

The negative shift witnessed in the risk sentiment, however, is allowing the dollar to stay resilient against rivals and capping EUR/USD's upside in the European session.

Officials from both Russia and Ukraine rejected the view that they were making significant progress toward a peace agreement. On the same note, Reuters reported late Thursday that a western official thought there still was a big gap in negotiations. Furthermore, "Russia may be contemplating a chemical-weapons attack,'' US Secretary of State Antony Blinken said. 

In case the Russia-Ukraine headlines point to a further escalation of the conflict, investors are likely to stay away from risk-sensitive assets ahead of the weekend. In the meantime, EUR/USD is up more than 100 pips on a weekly basis, suggesting that the pair could find it difficult to push higher amid profit-taking later in the day.

The European economic docket will feature January Trade Balance data, which is likely to be ignored by market participants. 

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart holds comfortably above 50 despite edging slightly lower during the Asian trading hours. 

1.1040 (100-period SMA, Fibonacci 50% retracement of the latest downtrend) forms critical support for the pair. In case sellers manage to drag the pair back below that level and hold it there, additional losses toward 1.1000 (psychological level, Fibonacci 38.2% retracement, 50-period SMA9 could be witnessed.

On the upside, if EUR/USD steadies above 1.1080 (Fibonacci 61.8% retracement), it could target 1.1140 (Thursday high, static level) before turning its attention to 1.1200 (psychological level, 200-period SMA).