EUR/USD Analysis: Bulls pause near June swing highs, upside potential intact

• EUR/USD continued gaining traction on Tuesday amid hopes of additional stimulus.
• The USD remained on the defensive and provide an additional boost to the major.
• The pair shot to over one-month tops on Wednesday as the focus remains on ECB.

The EUR/USD pair built on its recent positive momentum and moved back above the 1.1400 round-figure mark for the first time since June 11. The shared currency was supported by hopes that European Union leaders may agree on stimulus and deepening fiscal integration to shield the economy from the pandemic. Bulls largely shrugged off weaker-than-expected ZEW economic survey, which showed that German Economic Sentiment fell to 59.3 in July as compared to consensus estimates pointing to a drop to 60 from 63.4 previous. The German ZEW Current Situation Index also fell short of market expectations and rose to -80.9 from -83.1 June. Meanwhile, the broader Eurozone ZEW Economic Sentiment improved from 58.6 to 59.6, but again missed market expectations of 78.1. Separately, the German CPI print matched preliminary estimates and was finalized at 0.6% MoM,  0.9% YoY for June.

On the other hand, the US dollar failed to attract any meaningful buying interest despite concerns about a surge in coronavirus cases, which pushed California back into lockdown. The greenback remained on the defensive following the release of hotter-than-expected US consumer inflation figures. In fact, the headline CPI increased by 0.6% in June, the most in nearly eight years and snapped three straight months of declines. The yearly rate matched expectations and came in at 0.6% in June, marking the smallest YoY rise since September 2015. The data eased worries about deflationary pressures from the economic downturn, albeit did little to provide any impetus to the USD. Adding to this, optimism about a coronavirus vaccine led to a strong rally in the US equity markets, which further undermined the greenback's safe-haven status and provided an additional boost to the major.

The pair ended near the top end of its daily trading range and shot to four-month tops, around the 1.1425 region during the Asian session on Wednesday. The pair, however, struggled to capitalize on the move, instead witnessed a modest pullback amid nervousness over rising Sino-US tensions. The US President Donald Trump signed a bill sanctioning Chinese officials in response to Beijing's national security law for Hong Kong and an executive order ending preferential treatment for Hong Kong. China was quick to respond and threatened to impose retaliatory sanctions against US individuals and entities. Meanwhile, the downside is likely to remain cushioned as investors might refrain from placing any aggressive bids ahead of the ECB monetary policy decision. In the meantime, the pair remains at the mercy of the USD price dynamics in the absence of any relevant market-moving releases from the Eurozone. Later during the early North American session, the US economic docket – highlighting the release of Empire State Manufacturing Index and Industrial Production – will be looked upon for some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, bulls might now wait for some follow-through buying above the 1.1420-25 resistance zone before positioning for any further appreciating move. A convincing breakthrough should pave the way for a move back towards retesting YTD tops, just ahead of the key 1.1500 psychological mark. Some follow-through buying has the potential to lift the pair further towards 2019 yearly swing highs resistance near the 1.1570 region.

On the flip side, the 1.1350 region now seemed to protect the immediate downside, below which the pair is likely to slide back towards the 1.1300 mark. Failure to defend the mentioned support levels might prompt some technical selling and accelerate the slide further towards the 1.1260 horizontal zone before the pair eventually slides to test sub-1.1200 level.