EUR/USD Analysis: Struggles to find acceptance above mid-1.1300s, focus shifts to ECB on Thursday

• EUR/USD gained some follow-through traction on Monday and shot to over one-month tops.
• The upbeat market mood continued undermining the safe-haven USD and remained supportive.
• Concerns about escalating US-China tensions, coronavirus jitters kept a lid on any strong gains.

The EUR/USD pair built on Friday's modest positive move and gained some follow-through traction on the first day of a new trading week. The US dollar was under pressure again amid the upbeat market mood, which remained well supported by the latest optimism over coronavirus treatment. In the latest development surrounding the coronavirus saga, Gilead Sciences said on Friday that an analysis showed its antiviral remdesivir helped reduce the risk of death in severely ill COVID-19 patients. Adding to this, hopes of a sharp V-shaped global economic recovery further underpinned the global risk sentiment and kept the USD bulls on the defensive through the major part of the trading action on Monday.

The shared currency was further supported by the fact that Fitch rating agency late Friday confirmed Italy's credit rating, with a stable outlook. Adding to this, German economic ministry said on Monday that the economy has already passed its lowest point and the recovery process is starting, though is still at the beginning. The pair moved back above the 1.1350 strong resistance zone and shot to over one-month tops, albeit struggled to capitalize on the momentum. Renewed concerns about escalating US-China tensions, coupled with fresh coronavirus restrictions in California extended some support to the greenback's safe-haven status and kept a lid on the pair's intraday positive move.

The pair retreated around 30 pips from the daily swing high, albeit managed to end in the positive territory for the second consecutive session. The pair held steady and was seen oscillating in a narrow trading band through the Asian session on Tuesday. Market participants now look forward to the final version of German CPI figures, which along with the release of July ZEW survey results will influence the common currency. Later during the early North American session, the US consumer inflation figures might further contribute to produce some meaningful trading opportunities. The key focus, however, will remain on the ECB monetary policy decision on Thursday. Hence, any reaction to the incoming economic data is likely to be short-lived. Investors might refrain from placing any aggressive directional bets heading into the key event risk, which could eventually lead to a subdued/range-bound trading action.

Short-term technical outlook

From a technical perspective, the pair’s repeated failure to find acceptance above mid-1.1300s warrant some caution for bullish traders. This makes it prudent to wait for some strong follow-through buying beyond the 1.1370-75 region before positioning for any further appreciating move. A subsequent strength beyond the 1.1400 mark will now be seen as a fresh trigger for bulls and set the stage for a move back towards retesting YTD tops, just ahead of the key 1.1500 psychological mark.

On the flip side, the 1.1300 mark is likely to protect the immediate downside, which is closely followed by support near the 1.1275-70 region. Failure to defend the mentioned support might accelerate the slide further towards a three-week-old ascending trend-line support, currently near the 1.1220 zone. A convincing breakthrough, leading to a subsequent slide below the 1.1200 mark would expose the 1.1100 mark before the pair eventually drops to the very important 200-day SMA, around mid-1.1000s.