EUR/USD Analysis: A modest USD pullback helped ease bearish pressure, for the time being

• EUR/USD staged a modest bounce from two-month lows amid some USD profit-taking.
• Reviving risk sentiment undermined the safe-haven USD and extended some support.
• Coronavirus jitters helped limit the USD pullback and capped the upside for the major.

The EUR/USD pair seesawed between tepid gains/minor losses and consolidated its recent fall to two-month lows. Concerns about the second wave of COVID-19 infections continued weighing on investors' sentiment. This was evident from the risk-off mood through the first half of the trading action on Thursday and drove some haven flows towards the US dollar. This coupled with signs that the economic recovery in the Eurozone could be running out of steam undermined the shared currency and exerted some early pressure on the major.

On the economic data front, the headline German IFO Business Climate Index fell short of market expectations and came in at 93.4 in September. Meanwhile, the Current Economic Assessment arrived at 89.2 points for the reported month as compared to last month's 87.9 and 89.5 anticipated. From the US, the Initial Weekly Jobless Claims rose to 870K as against a fall to 843K expected from 866K previous. Adding to this, a late rebound in the US equity markets prompted some USD profit-taking and extended some support to the pair.

The market sentiment stabilized a bit amid renewed hopes that the US Congress could break a months-long impasse to agree on the next round of fiscal stimulus measures. Reports indicated that Democrats in the US House of Representatives are working on a $2.2 trillion coronavirus stimulus package. Moreover, the House Speaker Nancy Pelosi could resume stalled stimulus talks with the US Treasury Secretary Steven Mnuchin. However, reviving risk sentiment pushed the US Treasury bond yields higher and helped limit any meaningful USD pullback.

Meanwhile, the pair recovered around 60 pips from daily swing lows, albeit lacked any strong follow-through and remained confined in a range, just above mid-1.1600s through the Asian session on Friday. In the absence of any major market-moving economic releases from the Eurozone, the pair remains at the mercy of the USD price dynamics and the broader market risk sentiment. Later during the North American session, the release of Durable Goods Orders data from the US will be looked upon for some meaningful trading opportunities on the last day of the week.

Short-term technical outlook

From a technical perspective, the attempted recovery is more likely to confront immediate resistance near the 1.1700 mark. Any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.1760-65 horizontal support breakpoint. That said, some follow-through buying could trigger a short-covering move and push the pair back above the 1.1800 mark. Bulls might then aim to surpass the 1.1870-75 strong resistance, which if cleared decisively will negate any near-term bearish bias.

On the flip side, bears might now wait for a sustained weakness below the overnight swing lows, around the 1.1625 region. A convincing break below will be seen as a fresh trigger for bearish traders and turn the pair vulnerable to extend the downward trajectory further towards challenging the key 1.1500 psychological mark. The latter coincides with an important confluence region – comprising of the 61.8% Fibonacci level of the 1.1683-1.2011 positive move and 100-day SMA – and should now act as a strong base for the major.