EUR/USD Forecast: Euro to weaken further if bulls fail to defend 1.1380

• EUR/USD has extended downward correction after closing modestly lower on Monday.
• Surging US Treasury bond yields support the greenback early Tuesday.
• Souring market mood could put additional weight on the euro's shoulders.

EUR/USD has come under bearish pressure early Tuesday after posting small daily losses on Monday. With the dollar continuing to gather strength on rising US Treasury bond yields, the pair is testing 1.1400 early Tuesday and a drop below 1.1380 could open the door for additional losses in the near term.

Following a three-day weekend in the US, the benchmark 10-year US T-bond yield surged higher on Tuesday and reached its strongest level in two years near 1.85%. The US Dollar Index, which touched its lowest level in more than two months at 94.62 on Friday, climbed to 95.50 during the Asian trading hours to highlight renewed dollar strength.

The souring market mood, meanwhile, is making it difficult for the shared currency to attract investors. Escalating geopolitical tensions amid the Russia-Ukraine conflict have caused market participants to seek refuge and US stocks futures have declined between 0.2% and 1%.

Later in the session, ZEW Survey results for the euro area and Germany will be watched closely by market participants. The Economic Sentiment Indicator in Germany is expected to rise in January but it is forecast to decline modestly in the eurozone. Unless these data reveal a convincing improvement in confidence, the shared currency is unlikely to capitalize on them. The US economic docket will feature the Federal Reserve Bank of New York's Empire State Manufacturing Survey.

EUR/USD Technical Analysis

The pair is currently trading near 1.1400 - Fibonacci 23.6% retracement of the uptrend that started on January 6 and lasted for a week. In case this level turns into resistance, the next support aligns at 1.1380 (50-period SMA on the four-hour chart, Fibonacci 50% retracement). With a decisive drop below that level leading to additional losses toward 1.1350 (100-period SMA, Fibonacci 61.8% retracement could be witnessed).

On the upside, buyers could show interest in the common currency if 1.1400 proves to be stronger support than it appears. 1.1430 (20-period SMA, Fibonacci 23.6% retracement) could be seen as the next hurdle in a bullish scenario.

The lack of momentum in either direction, as mirrored by the flat Relative Strength Index (RSI) near 50, suggests that 1.1400 has become a pivot point in the near term.