EUR/USD Technical Analysis: Cautious Recovery

Attempts of the EUR/USD currency pair compensated for its recent losses, which pushed it towards the 1.1280 support level. During threats of Russian military action against Ukraine, it returned to stability around the 1.1360 level at the time of writing the analysis, before announcing the contents of the minutes of the last meeting of the US Federal Reserve. Since yesterday, the euro has been in a cautious recovery, amid signs that tensions in Eastern Europe may be easing. While the situation on the Ukraine-Russia border remains tense, reports that Russia has been sending some troops to “return to base” have been attributed to a recovery in investor sentiment, which in turn helped the euro.

On Tuesday, the Interfax news agency reported that units from Russia's western and southern military districts are heading to their bases by rail and truck at the conclusion of their training, citing the Russian Defense Ministry. Accordingly, Igor, a spokesman for the Russian Defense Ministry, said that “the units of the southern and western military regions, which have completed their tasks, are boarding trains and trucks and will go to their garrisons later today. Some units will join military convoys and will perform self-propelled marches.”

The headlines were picked up by financial market participants who noted that tensions were easing somewhat.

On the other hand, the British pound rose this week against the euro, but fell against the dollar amid increasing investor concern related to Russian-Ukrainian tensions. The currency reaction testifies to the EU's heavy dependence on energy imports from Russia. Commenting on the aftermath of the war, Mark Heffel, chief investment officer, Global Wealth Management, at UBS AG said, “The EU will also suffer dire consequences, given that Russian energy accounts for roughly 40% of its gas imports and 30% of its oil imports.”

So far, the situation is tense, with Western estimates that by Monday 100 Russian battalion tactical groups had amassed within walking distance of Ukraine, representing 60% of Russia's ground combat force. Commenting on the performance of the forex market, Marius Hadjikiriakos, Senior Investment Analyst at XM.com said, “The euro has come under heavy criticism as traders priced in the collateral damage from a potential conflict on the eurozone's doorstep and the spillover effects of rising energy prices. This is really a big problem in Europe where consumers are being pressured by high electricity bills.”

However, the dollar was on offer against both the pound and the euro, thanks to the security credentials embodied by the world's largest and most liquid financial asset.

According to the technical analysis of the pair: All factors are still in favor of the US dollar from the demand for it as a safe haven, in addition to strong expectations regarding the US interest rate hikes this year and the economic recovery from the effects of the epidemic. Accordingly, the price of the EUR/USD currency pair may remain under downward pressure, and the 1.1300 point represents the starting point for the bears to the downside. The general trend targets are now 1.1280 and 1.1190, respectively. The last level supports expectations of psychological support 1.1000. On the other hand, the pair will not have an opportunity to change the trend first without breaching the resistance levels 1.1490 and 1.1565, respectively. Eurodollar gains are still subject to selling.

Before announcing the contents of the minutes of the last meeting of the US Federal Reserve, US retail sales figures will be announced.