EUR/USD Outlook: Bears might now aim to test 2020 low, around 1.0635 region

• EUR/USD dived to its lowest level since March 2020 on Monday amid sustained USD buying.
• Aggressive Fed rate hike bets, the risk-off mood continued underpinning the safe-haven buck.
• Bulls seemed unimpressed by reports that ECB is keen on starting the rate hike cycle in July.

The EUR/USD pair witnessed heavy selling on the first day of a new week and slipped below the 1.0700 round-figure mark for the first time since March 2020 amid sustained US dollar buying. Hawkish comments by various FOMC officials last week, including Fed Chair Jerome Powell, reaffirmed bets for a more aggressive policy tightening by the Fed. In fact, the markets now expect the US central bank to raise interest rates by 50 bps at each of its next four meetings in May, June, July and September. This, along with, the prevalent risk-off environment, lifted the safe-haven greenback to a more than two-year high and exerted downward pressure on the major.

Against the backdrop of expectations for rapid US interest rate hikes, prolonged COVID-19 lockdowns in China fueled concerns about a global economic slowdown. This, in turn, tempered investors' appetite for perceived riskier assets and boosted demand for traditional safe-haven assets. On the economic data front, the German Ifo Business Climate Index unexpectedly improved to 91.8 for the current month, though did little to lend any support to the shared currency. Bulls failed to gain any respite from reports that some European Central Bank (ECB) policymakers were keen to end the asset purchases in June and start raising interest rates as soon as July.

That said, the recent pullback in the US Treasury bond yields kept a lid on any further gains for the buck. This, in turn, assisted the pair to find some support at lower levels and regain some positive traction during the Asian session on Tuesday. There isn't any major market-moving macro data due for release from the Eurozone, while the US economic docket features Durable Goods Orders and the Conference Board's Consumer Confidence Index. Apart from this, traders will take cues from the US bond yields and the broader market risk sentiment, which will influence the USD price dynamics and produce some short-term opportunities around the major.

Technical levels to watch

From a technical perspective, nothing seems to have changed for the pair and the near-term bias remains tilted firmly in favour of bearish traders. That said, it will be prudent to wait for sustained weakness below the 1.0700 mark before positioning for any further losses. The pair might then accelerate the slide towards testing the 2020 low, around the 1.0635 region. Some follow-through selling, leading to a subsequent breakthrough the 1.0600 mark, will set the stage for an extension of the recent well-established downtrend.

On the flip side, attempted recovery now seems to confront stiff resistance near the previous YTD low, around the 1.0760-1.0755 region ahead of the 1.0800 round-figure mark. Any subsequent move up is likely to attract fresh selling and remain capped near the 1.0850-1.0855 zone. The latter should act as a pivotal point, which if cleared decisively will suggest that the pair has formed a near-term bottom and trigger a fresh bout of a short-covering move. The pair might then aim to surpass the 1.0900 mark and test last week's swing high, around the 1.0935 region.