EUR/USD Perks Up After Selloff but Geopolitics Create Risks. How?

EUR/USD ANALYSIS

• EUR/USD rebounds after weakness late last week, but geopolitical tensions remain a concern for riskier currencies
• A ground invasion of the Gaza Strip by Israel may have negative implications for the euro, as it has the potential to intensify tensions in the Middle East
• This article discusses crucial EUR/USD technical levels that warrant attention in the coming days.

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The euro appreciated moderately against the U.S. dollar on Monday (EUR/USD: +0.37% to 1.0546), but gains were moderate amid market caution in the FX space. Israel’s decision to postpone its invasion of the Gaza Strip appears to have helped stabilize the mood at the margin, but the situation in the Middle East continues to be highly volatile and could worsen at any time following the recent Hamas terrorist attacks.

With geopolitical tensions casting a shadow over the outlook, EUR/USD will remain in a precarious position and subject to headline-driven shifts. Within this context, any new developments suggesting a deterioration in the Israel-Palestine conflict are likely to weigh on riskier currencies, creating a more constructive backdrop for the greenback in the near term. Broadly speaking, the U.S. dollar is considered a safe-haven asset, so it tends to perform well in times of heightened uncertainty, high turbulence, and financial stress.

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From a technical perspective, EUR/USD sold off late last week, but started to recover after failing to pierce trendline support around the 1.0500 handle. Given the fragile market sentiment, bulls may struggle to push prices higher, but in case of additional gains, resistance lies at 1.0610/1.0635, the upper boundary of a short-term descending channel. Further up, the focus transitions to 1.0765, the 38.2% Fibonacci retracement of the July/October slump.

Conversely, if sellers return and trigger a bearish reversal, support stretches from 1.0500 to 1.0465. While the pair may endeavor to establish a base within this region during a pullback, a breach of this floor could amplify downward momentum, paving the way for a pullback towards 1.0365. With ongoing weakness, the likelihood of a progression towards 1.0225 becomes more prominent.

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EUR/USD TECHNICAL CHART

EUR/USD Chart Created Using TradingView