EUR/USD forecast: Remains vulnerable to challenge 1.10 handle

• Dovish ECB expectations continue to weigh on the shared currency.
• A modest USD pullback helped limit further downside, at least for now.
• Traders now eye final Euro-zone CPI figures for some short-term impetus.

ECB easing speculations dragged the German bond yields to a new record low on Friday and continued affecting negatively on the shared currency. The EUR/USD pair extended its rejection slide from 100-day SMA - levels beyond the 1.1200 handle - and dropped to over two-week low level of 1.1066 in reaction to the ECB Governing council member Oilli Rehn's dovish comments, hinting a significant and impactful policy package in September. The pair was further pressurized by the prevalent bullish sentiment surrounding the US Dollar, which rallied back closer to over two-year tops set earlier this August.

Seemed to have stabilized near 1.1100 handle

The greenback, however, failed to preserve early gains, rather started losing positive momentum following the disappointing release of preliminary Michigan Consumer Sentiment Index, falling to 92.1 in August amid the uncertainty surrounding the Trump administration's trade policy. This coupled with talk of German fiscal boost extended some additional support to the major and helped limit deeper losses, at least for the time being. According to Der Spiegel magazine, the German government is considering ditching its balanced budget rule and take on new debt to counter a possible recession.
 
Nevertheless, the pair ended on a downbeat note for the fourth week in the previous five and recorded its lowest weekly close since May 2017. The pair now seems to have stabilized a bit and was seen oscillating in a narrow trading band around the 1.1100 round figure mark through the Asian session on Monday. Market participants now look forward to the release of final Euro-zone consumer inflation figures for July in order to grab some short-term trading opportunities. In absence of any major market-moving economic releases from the US, traders are likely to refrain from placing any aggressive bets ahead of this week's key event risk - the release of the latest FOMC meeting minutes.

Short-term technical outlook

From a technical perspective, repeated rejection near 100-day SMA and a subsequent slide below the 1.1100 handle suggests that the near-term selling bias might still be far from being over. A follow-through weakness below the 1.1065 region (Fridays swing low) will reinforce the bearish outlook and turn the pair vulnerable to breakthrough yearly lows, around the 1.1025 region, and aim towards challenging the key 1.10 psychological mark en-route the 1.0975 zone - support marked by a descending trend-line extending from December 2018.
 
On the flip side, attempted recovery back above the 1.1100 handle might now confront immediate resistance near the 1.1125 region, above which a bout of short-covering might assist the pair to recover further, albeit seems more likely to remain capped near the recent trading range support breakpoint - around the 1.1175-80 region.