EUR/USD Forecast: Sellers to retain control with a drop below 1.0200

• EUR/USD has plunged to its weakest level in nearly two decades.
• Additional losses could be witnessed in 1.0200 support fails.
• Eyes on US ISM Services PMI data, FOMC Minutes.

EUR/USD has suffered heavy losses and touched its weakest level since December 2002 at 1.0226 on Wednesday. Although there is a positive shift in risk sentiment mid-week, the shared currency is having a tough time staging a meaningful rebound. 1.0200 aligns as the next significant support for the pair and a drop below that level could trigger another leg lower.

On top of Russia lowering gas supplies, Norway, the second-biggest gas supplier of Europe, has warned that gas exports could fall by as much as 60% due to the ongoing strikes at the state-backed energy company Equinor. Investors grow increasingly worried about the European economy tipping into recession amid the energy crisis. Moreover, several European Central Bank (ECB) policymakers noted that a 25 basis points rate hike in July would be appropriate, making it difficult for the euro to attract investors. 

Meanwhile, the latest data published by Eurostat revealed that Retail Sales rose by 0.2% in May, missing the market expectation for an increase of 0.4%. 

In the second half of the day, the ISM Services PMI data from the US will be looked upon for fresh impetus. On Friday, the ISM Manufacturing PMI showed a significant loss of growth momentum in the business activity of the manufacturing sector. This report weighed on sentiment and allowed the greenback to gather strength ahead of the weekend. Hence, a similar market reaction could be witnessed is the survey points to worsening business conditions in the services sector.

In the late American session, the US Federal Reserve will release the minutes of its June monetary policy meeting. The CME Group FedWatch Tool shows that markets are pricing in an 88% probability of a 75 basis points Fed rate hike in July. If the Fed's publication lowers that chance, EUR/USD could stage a rebound on renewed dollar weakness.

EUR/USD Technical Analysis

EUR/USD has turned technically oversold in the near term with the Relative Strength Index (RSI) indicator on the four-hour chart staying well below 30. Although this development suggests that the pair could make a technical correction before the next leg lower, the bearish bias stays intact.

On the upside, 1.0260 (static level, former support) aligns as initial resistance ahead of 1.0300 (psychological level). Only a daily close above the latter could discourage sellers and open the door for an extended rebound toward 1.0370 (20-period SMA).

1.0200 (psychological level) forms the next line of defence. In case this level fails, 1.0130 (static level from November 2002, former resistance) could be seen as the next bearish target.