EUR/USD Forecast: How the bounce over critical support could prove a selling opportunity

• EUR/USD has been attempting to recover amid a better market mood.
• Concerns about the US economy, the ECB's powers, and coronavirus could bring it back down.
• Tuesday's four-hour chart sis showing how the pair escaped critical support for now.

"You can check out any time you like, But you can never leave" – the lyrics from "Hotel California" by the Eagles seem to represent the current market mood. Stocks are rising and the safe-haven US dollar is on the back foot as California – the largest and richest US state – announced it will be easing restrictions. 

The western state's move is also significant as it comes from a Democrat-led state. Governor Gavin Newsom was early with lockdowns and his move toward reopening the economy – something that Republican President Donald Trump urges, is a sign of progress.

However, fears about the US COVID-19 situation remain prevalent and could boost the US dollar. A document by the Center for Disease Control (CDC) has projected that US coronavirus deaths may double to around 134,000 in early June. While the White House dismissed the report, another estimate from the Institute for Health Metrics and Evaluation (HIME) in the University of Washington shows a similar forecast and warns of easing lockdowns:

The revised projections reflect rising mobility in most US states as well as the easing of social distancing measures expected in 31 states by May 11, indicating that growing contacts among people will promote transmission of the coronavirus. Increases in testing and contact tracing, along with warming seasonal temperatures – factors that could help slow transmission – do not offset rising mobility, thereby fueling a significant increase in projected deaths. 

The dire predictions may return to haunt markets. 

Politicians everywhere are having a hard time balancing between health and economic needs. US Factory Orders plunged by over 10% in March and investors are eyeing Tuesday's ISM Non-Manufacturing Purchasing Managers' Index for April. The publication serves as a hint toward Friday's Non-Farm Payrolls and is set to rock the market. A devastating headline figure – and employment component – could boost the greenback and weigh on stocks.

See US ISM Non-Manufacturing PMI Preview: Will April’s statistics reignite the safety trade?

In the old continent, the latest coronavirus statistics have been encouraging, especially in Germany. The eurozone's locomotive has reported fewer than 1,000 new infections in the past four days. Chancellor Angela Merkel is working with state leaders on plans to further loosen the lockdowns.

That political harmony is missing in Spain, where Prime Minister Pedro Sánchez's minority government may lose a vote to extend the state of emergency. The eurozone's fourth-largest economy has been hard-hit by the illness. 

Spain and Italy have growing funding needs amid the crisis, and the European Central Bank's expanded bond-buying schemes are helping them get by. However, the bank's programs were challenged in Germany's constitutional court which will rule on them later on Tuesday. While judges in Karlsruhe will likely dismiss the charges of illegal actions, the event is yet another risk factor.

Overall, the recent upbeat mood may be premature and EUR/USD has room to the downside. 

EUR/USD Technical Analysis 

Euro/dollar has bounced above 1.0890, which was a stubborn cap several times in late April, and its defended by the 100 and 200 Simple Moving Averages, which await around 1.0880. That critical level is now in danger.

Below 1.0890, the next level to watch is 1.0860, which capped EUR/USD on the way up in late April, and by 1.0810, a support line from earlier last month. The next levels to watch are 1.0770 and 1.0730. 

Resistance is at 1.0930, a temporary support line on Monday, followed by 1.0970, a swing high on the way up, and by April's peak of 1.0995.