EUR/USD Analysis: Post-US CPI rebound lacks follow-through, bearish potential intact

The EUR/USD pair struggled to capitalize on the previous day's modest bounce from the vicinity of YTD lows and witnessed a subdued/range-bound price action through the early European session on Thursday. A combination of factors held traders from placing any aggressive bets around the US dollar, which, in turn, failed to provide any meaningful impetus to the major. Signs of moderating inflationary pressure in the US eased fears about an early withdrawal of the stimulus by the Fed and led to some follow-through decline in the US Treasury bond yields. This kept the USD bulls on the defensive and extended some support to the major.

However, the Fed officials have started to guide the market towards early tapering and higher interest rates as soon as 2022. Kansas City Fed President Esther George said on Wednesday that the time had come to end the central bank’s bond-buying program. Adding to this, Dallas Fed President Rob Kaplan said that he will press his colleagues to announce a plan to taper bond purchases at the next meeting in late September. This comes on the back of hawkish comments by Atlanta Fed President Raphael Bostic and Boston Fed President Eric Rosengren earlier this week, which continued acting as a tailwind for the USD.

Meanwhile, investors remain worried that the spread of the highly contagious Delta variant of the coronavirus could derail the global economic recovery. This was evident from the prevalent cautious mood around the equity markets, which further underpinned the safe-haven greenback and capped the upside for the pair. There isn't any major market-moving economic data due for release from the Eurozone, leaving the pair at the mercy of the USD price dynamics. Later during the early North American session, traders might take cues from the release of the Producer Price Index and the usual Initial Weekly Jobless Claims data from the US. This, along with the US bond yields and the broader market risk sentiment, might influence the USD price dynamics and produce some trading opportunities around the major.

Short-term technical outlook

From a technical perspective, the lack of any follow-through buying suggests that the recent downtrend might still be far from being over. Moreover, technical indicators on the daily chart are holding deep in the bearish territory and still far from being in the oversold zone. This, along with the recent break below a short-term ascending trend-line extending from September 2020 swing lows, favours bearish traders.

From current levels, any meaningful slide might continue to find decent support near the 1.1700 mark. A convincing break below will reaffirm the bearish outlook and prompt some aggressive technical selling. The pair might then accelerate the fall towards intermediate support near the 1.1665-60 region before eventually dropping to November 2020 lows, around the 1.1600 round figure.

On the flip side, bulls might wait for a move beyond the overnight swing high, around the 1.1755 region, before placing fresh bets. Any subsequent positive move might still be seen as a selling opportunity and remain capped near the 1.1800 mark. This is followed by resistance near the 1.1830-35 region, which if cleared decisively might trigger a short-covering move. The next relevant hurdle is pegged near the 1.1880 supply zone ahead of the 1.1900 mark.

A sustained strength beyond might negate the bearish bias and allow the pair to aim back to reclaim the key 1.2000 psychological mark. The latter coincides with the very important 200-day SMA and should act as a key pivotal point for short-term traders.