EUR/USD: The rebound is still capped below 1.09 due to the Ukraine conflict and the oil shock

EUR/USD: The rebound is still capped below 1.09 due to the Ukraine conflict and the oil shock.

The EUR/USD is seeing a dead cat bounce below 1.0900, as risk-off sentiment remains high with the increasing Russia-Ukraine crisis, which has driven up oil prices. The ECB is in for more pain as a result of soaring prices and rising recessionary threats.

Despite the recent comeback effort, the four-hour chart's Relative Strength Index (RSI) indicator remains below 30, indicating that the pair is still technically oversold. If the pair attempts to prolong its correction, resistance will most likely be found at 1.0900 (psychological level), 1.0950 (static level), and 1.1000. (psychological level).

On the downside, the initial bearish objective is at 1.0820 (the 22-month low), followed by 1.0800 (the psychological threshold) and 1.0770 (the psychological level) (static level).

At the start of the week, the EUR/USD fell to its lowest level since May 2020, at 1.0820, but the pair has managed to produce a tiny recovery coming into the European session. However, in the current market environment, the shared currency is unlikely to find sufficient demand to kickstart a long-term rebound versus the dollar.

Civilians were killed in the Irpin suburb of Irpin over the weekend, according to Ukrainian authorities, when the Russian military broke the truce and attacked an evacuation point. Meanwhile, the Ministry of Defense of the United Kingdom claimed early Monday that Russia is likely attacking Ukraine's communications infrastructure in order to limit civilians' access to credible news. Finally, the General Staff of Ukraine's Armed Forces stated in a statement that Russia was amassing resources in preparation for an attack on Kyiv.

On Monday, there will be no high-impact data releases in the economic calendar, thus geopolitical stories will likely continue to dominate market movement.

The greenback has maintained its safe-haven status since the start of the war, with the US Dollar Index rising to its highest level in 22 months near 99.00 on Monday. Unfortunately, recent events indicate that a de-escalation of the situation is unlikely, and EUR/USD should remain on the back foot, with the dollar remaining firm.

In addition to risk aversion, the euro is being weighed down by fresh predictions of a dovish shift in the European Central Bank's (ECB) policy outlook. According to a recent Reuters poll, the ECB is widely predicted to delay raising its policy rate until the final months of 2022. "Of the 33 of 45 respondents who expected the deposit rate to rise from a record low of -0.50 percent this year, 18 expected it to be at -0.25 percent at year's end, nine expected it to be lower, and six expected it to be higher," Reuters said.