EUR/USD Analysis: Bulls take a breather, focus remains on US stimulus talks

The EUR/USD pair advanced for the fourth consecutive session on Wednesday and shot to five-week tops, around the 1.1880 region on the back of some heavy selling around the US dollar. News that the US President Donald Trump was willing to accept a large aid bill raised hopes for a pre-election stimulus breakthrough. This, in turn, helped boost investors' confidence and undermined demand for the safe-haven greenback.

Meanwhile, prospects for more government borrowing sparked a selloff in the US Treasuries and pushed the yield on the benchmark 10-year government bond to over four-month tops. The lack of demand for government debt exerted some additional downward pressure on the buck. Even growing market concerns that the second wave of coronavirus infections could hinder the global economic recovery did little to provide any respite to the USD bulls.

Investors remain sceptic that any package can actually pass through the Republican-controlled Senate before the November 3 election. The stimulus optimism already seems to have faded as there remains a strong opposition from within Trump’s own Republican Party. Adding to this, Trump on Wednesday accused Democrats of being unwilling to craft an acceptable compromise on stimulus. The slow pace of US stimulus talks added to uncertainty about the US economic outlook and took its toll on the global risk sentiment.

This was evident from a fresh leg down in the equity markets, which helped revive the USD demand. This, coupled with dovish ECB expectations, prompted some selling around the major during the Asian session on Thursday. Market participants now look forward to the release of the German Gfk Consumer Confidence for some impetus. The US economic docket features the release of the usual Initial Weekly Jobless Claims. The key focus, however, will be on developments surrounding the US fiscal stimulus, which might continue to infuse some volatility in the financial markets.

Short-term technical outlook

From a technical perspective, the pair struggled to find acceptance above the 61.8% Fibonacci level of the 1.2011-1.1612 downfall and witness a modest pullback from the 1.1880-90 congestion zone. This makes it prudent to wait for some strong follow-through buying beyond the mentioned hurdle before positioning for any further appreciating move. A sustained move back above the 1.1900 mark will be seen as a fresh trigger for bullish traders and set the stage for a move back towards reclaiming the key 1.2000 psychological mark.

On the flip side, any subsequent slide is likely to find decent support near the 50% Fibo. level, around the 1.1815 region. This is closely followed by a confluence resistance breakpoint, around the 1.1800 mark, comprising of 50-day SMA and a near six-week-old descending trend-line. Failure to defend the mentioned support levels might prompt some technical selling and accelerate the slide towards the next major support near the 1.1765-60 horizontal zone. The downward trajectory could further get extended to 23.6% Fibo. level, around the 1.1700 mark, which if broken decisively will negate any near-term positive bias. The pair might then turn vulnerable to aim back to retest September monthly swing lows, around the 1.1615-10 region.