EUR/USD forecast: Remains confined in a broader trading range ahead of the key central bank meetings

• Dovish ECB expectations exert some heavy pressure on the shared currency.
• The USD gains some traction amid tempered aggressive Fed rate cut hopes.
• The recent range is likely to remain intact ahead of this week’s ECB meeting.

The EUR/USD pair once again failed near the 1.1280-85 supply zone and came under some heavy selling pressure on Friday. The shared currency was weighed down by a report from a German news magazine, Der Spiegel, suggesting the European Central Bank (ECB) was planning to resume its bond-buying program by November. The pair tumbled back closer to the 1.1200 handle and was further pressurized by resurgent US Dollar demand, supported by the fact that St. Louis Fed President James Bullard partly ruled out the possibilities of 50 bps rate cut at the July meeting.

Bullard said that a 25 bps rate cut seems appropriate as the current US economic condition doesn't warrant a larger cut. It is worth reporting that bets for 50 bps Fed rate cut had surged following the New York Fed President John William’s comments on Thursday that indicated aggressive rate cut in the upcoming FOMC meeting on July 30-31, though walked back on hid dovish comments by saying that the speech was not about potential policy action at the upcoming meeting.

Nevertheless, the pair ended the day and the week in the red, albeit managed to defend the 1.1200 round figure mark and remained well within a broader trading range held over the past two weeks or so. Investors still seemed reluctant to place any aggressive bets and preferred to wait on the sidelines ahead of the highly anticipated central bank meetings. The ECB is scheduled to announce its latest monetary policy update later this week, which coupled with the flash Euro-zone PMI print will influence the market sentiment surrounding the shared currency. 

In the meantime, traders are likely to take cues from the Bundesbank's monthly economic report and the USD price dynamics, which might produce some short-term opportunities on the first trading day of the week amid absent relevant market moving economic releases.

From a technical perspective, the recent range-bound price action now seemed to have constituted towards the formation of a rectangle on short-term charts, suggesting indecision over the pair's near-term trajectory. Hence, it will be prudent to wait for a decisive breakthrough the 1.1200-1.1300 band before traders start positioning for the next leg of a directional move.

Sustained weakness below the 1.1200-1.1190 region will be seen as a fresh bearish breakdown and set the stage for a further near-term depreciating move towards the 1.1125 intermediate support en-route yearly lows, or closer to the 1.1100 round figure mark. Alternatively, decisive breakthrough the 1.1300 handle, leading to a subsequent move beyond the 1.1325-30 supply zone might negate any near-term bearish bias and assist the pair to aim back towards reclaiming the 1.1400 round figure mark with some intermediate resistance near the 1.1365 region.