EUR/USD Forecast: Door opens for additional recovery gains

EUR/USD has managed to build on Monday's gains early Tuesday and advanced to a fresh five-day high above 1.0480. The near-term technical outlook suggests that the pair has more room on the upside.

The positive shift witnessed in risk sentiment seems to be providing a boost to the shared currency in the early European session. The Euro Stoxx 600 Index is up more than 1% and US stock index futures are rising between 0.7% and 1.15%, reflecting the upbeat market mood.

The fact the city of Shanghai announced on Tuesday that there were no new infections across all the districts revived optimism that the coronavirus lockdown will be removed by the end of the month, allowing risk flows to return to markets.

Meanwhile, investors may have started to pay attention to the European Central Bank's (ECB) tightening prospects. According to a recently conducted Reuters poll, experts expect the ECB to hike its policy rate by 25 basis points and ditch negative rates by the end of September. "Of the 46 of 48 economists who expect the deposit rate to rise in the third quarter, 26 said rates would rise by 50 basis points by the end of the period, implying quarter-point moves at both the July and September meetings," Reuters wrote.

Later in the session, Eurostat will release the first-quarter Gross Domestic Product (GDP) data. Considering how the European Commission's downside revisions to growth forecasts were largely ignored by market participants, it would be fair to expect the euro to hold its ground as long as the sentiment remains positive.

In the second half of the day, Retail Sales and Industrial Production data from the US will be looked upon for fresh impetus. FOMC Chairman Jerome Powell and ECB President Christine Lagarde will be delivering speeches as well. Nevertheless, the risk-perception should remain the primary market driver.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart stays below 70 while holding above 50, suggesting that the pair has more room on the upside before turning technically overbought. 

On the upside, 1.0480 (50-period SMA, Fibonacci 50% retracement of the latest decline) aligns as initial resistance. In case this level turns into support, 1.0500 (psychological level, Fibonacci 61.8% retracement) and 1.0530 (100-period SMA) could be seen as the next recovery targets.

Supports are located at 1.0450 (Fibonacci 38.2% retracement), 1.0420 (Fibonacci 23.6% retracement) and 1.0400 (psychological level).