EUR/USD Forecast: Euro recovery attempts to remain short-lived

• EUR/USD has recovered modestly following the early selloff.
• Tensions continue to escalate with Russia ramping up aggression against Ukraine.
• Near-term technical outlook points to a technical correction before the next leg lower.

EUR/USD has dropped to its weakest level since May 2020 at 1.0820 at the start of the week but the pair has managed to stage a modest rebound heading into the European session. In the current market environment, however, the shared currency is unlikely to find enough demand to kick start an extended recovery against the greenback.

Ukrainian authorities said over the weekend that civilians died in the suburb of Irpin when the Russian military ignored the ceasefire and hit an evacuation point. Meanwhile, the UK's Ministry of Defense said early Monday that Russia was probably targeting Ukraine's communications infrastructure to limit citizens' access to reliable news. Finally, the General Staff of the Armed Forces of Ukraine noted in a statement that Russia was accumulating resources to attack Kyiv.

There won't be any high-impact data releases in the economic docket on Monday and geopolitical headlines are likely to continue to dominate the market action.

Since the beginning of the war, the greenback has preserved its safe-haven status with the US Dollar Index surging to its strongest level in 22 months near 99.00 on Monday. Sadly, the latest developments suggest that a de-escalation of the crisis is nowhere near in sight and EUR/USD should remain on the back foot with the dollar holding its ground.

In addition to the risk aversion, renewed expectations for a dovish shift in the European Central Bank's (ECB) policy outlook also weigh on the euro. According to a recently conducted Reuters poll, the ECB is widely expected to wait until the last months of 2022 before hiking its policy rate. "Of the 33 of 45 respondents who expected the deposit rate to rise from a record low of -0.50% this year, 18 saw it at -0.25% at year-end, nine had it lower than that and six saw it higher, Reuters wrote.

EUR/USD Technical Analysis

Despite the latest recovery attempt, the Relative Strength Index (RSI) indicator on the four-hour chart stays below 30, showing that the pair is still technically oversold. In case the pair tries to extend its correction, it is likely to meet resistance at 1.0900 (psychological level), 1.0950 (static level) and 1.1000 (psychological level).

On the downside, the first bearish target aligns at 1.0820 (22-month low) before 1.0800 (psychological level) and 1.0770 (static level).