EUR/USD Analysis: Range-play intact amid uncertainty over US fiscal stimulus

• EUR/USD gained some follow-through traction on Thursday amid sustained USD selling.
• Upbeat US employment data, surging US bond yields provided some respite to the USD.
• The US fiscal impasse continued undermining the USD and helped limit any further slide.

The EUR/USD pair built on the previous day's positive move and gained some follow-through traction on Thursday amid sustained selling around the US dollar. The deadlock in the negotiations for a COVID-19 stimulus package in the US continued weighing on the greenback, which was seen as one of the key factors that pushed the pair to fresh weekly tops. On the economic data front, the final version of German consumer inflation figures matched original estimates and did little to influence the shared currency. In fact, the headline CPI contracted 0.5% MoM in July and fell 0.1% from a year earlier.

Meanwhile, data released from the US showed that initial weekly jobless claims dropped below one million for the first time since the start of the pandemic, offering signs of the US economic recovery. Adding to this, an intraday spike in the US Treasury bond yields provided some respite to the USD. This, coupled with a cautious mood around the US equity markets drove some haven flows towards the greenback. This, in turn, kept a lid on any further gains for the major, rather led to a modest intraday pullback of around 50 pips back closer to the 1.1800 round-figure mark.

However, the suspension of talks for COVID-19 stimulus measures in the US held investors from placing any aggressive USD bullish bets and helped limit any meaningful slide for the major. The Senate will not return this month unless negotiators strike an agreement. In the meantime, Friday's release of the second version of the Eurozone Q2 GDP report might provide some impetus. The US economic docket highlights the release of monthly Retail Sales and Michigan Consumer Sentiment Index for August. The data will also be looked upon for some meaningful trading opportunities on the last day of the week.

Short-term technical outlook

From a technical perspective, the pair has been oscillating in a broader 200 pips trading range over the past three weeks or so. The price action constitutes the formation of a rectangle on short-term charts, warranting some caution for aggressive traders. Hence, it will be prudent to wait for a sustained move beyond the 1.1900 mark or a convincing break below the 1.1700 level before positioning for the pair’s next leg of a directional move.

Above the 1.1900 mark, the pair is likely to aim towards reclaiming the key 1.2000 psychological mark with some intermediate resistance near the 1.1975-80 region. Conversely, a break below the 1.1700 mark will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent corrective slide from near two-year tops set earlier this month. The pair might then accelerate the fall towards the 1.1625-20 support area. Subsequent fall below the 1.1600 mark will set the stage for an extension of the corrective slide towards testing the next major support near the 1.1550-40 region, marking the 50% Fibonacci level of the 1.1168-1.1916 rally.