EUR/USD Forecast: Modest bounce from critical support, risk of further slides still there

EUR/USD Current Price: 1.0774

• Tensions between the United States and China weigh on the market mood.
• Euro Zone Retail Sales plunged in January, down by 2.7% MoM.
• EUR/USD bounced after flirting with a critical mid-term Fibonacci support.

Risk aversion dominates financial markets at the beginning of the new week, pushing the US Dollar further up across the FX board. The American currency soared on Friday following the release of an upbeat January Nonfarm Payrolls report. The country added 517K new job positions in the month, more than doubling expectations, while the Unemployment Rate contracted to 3.4%, despite an increase in the Labor Force Participation Rate to 62.4%. The USD soared amid speculation the US Federal Reserve will continue to hike rates in the upcoming months, diminishing chances of a rate cut by year-end. EUR/USD fell towards the  1.0750 price zone, its lowest since early January

Mounting tensions between the United States and China add to the dismal mood. On Friday, President Joe Biden postponed US Secretary of State Blinken's forthcoming trip to China after a suspected Beijing surveillance balloon that flew American skies was taken down.

Data-wise, European figures were disappointing. On the one hand, Germany published December Factory Orders, which fell by 10.1% YoY, much worse than anticipated. On the other, Euro Zone Retail Sales fell by 2.7% MoM in January and by 2.8% compared to a year earlier. The United States will not publish relevant data on Monday.

EUR/USD short-term technical outlook

The EUR/USD pair trades at around 1.0770, down for the day, although confined to a tight range. The pair bottomed at 1.0756, a handful of pips above a critical support level, the 61.8% retracement of the 2022 slump at 1.0745. In the daily chart, the pair currently develops below a flat 20 SMA, while a bullish 100 SMA is crossing above a directionless 200 SMA, both at around 1.0320. Finally, technical indicators have turned flat around their midlines, reflecting the ongoing selling pause.

In the near term, and according to the 4-hour chart, the risk remains skewed to the downside. The pair found buyers around a mildly bullish 200 SMA that converges with the intraday low but develops below the 20 and 100 SMAs, with the shorter one gaining downward traction. At the same time, technical indicators pared their slides after reaching oversold readings, currently hovering near their daily lows. The risk of a steeper decline will increase on a break below the aforementioned Fibonacci support level, with scope then to extend its slump towards the 1.0600 price zone.

Support levels: 1.0745 1.0700 1.0660

Resistance levels: 1.0820 1.0870 1.0910

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