EUR/USD Analysis: Renewed USD selling helped bounce off 3-month lows, upside seems limited

After an initial slump to 1.1235 area - the lowest since mid-November, the EUR/USD pair staged a solid bounce during the North-American session on Friday and finally settled nearly unchanged for the day. The shared currency continued to be weighed down by growing market concerns over a slowdown in the Euro-zone economy. Adding to this, European Central Bank (ECB) executive board member Benoit Coeure said that it was possible for the central bank to engage in another targeted longer-term refinancing operation, or TLTRO and that the Euro-zone inflation was shallow. 

Coeure's comments further dampened hopes for a first ECB interest rate hike this year, which coupled with some intraday US Dollar buying exerted some additional downward pressure through Friday's trading session. The greenback regained positive traction, reversing Thursday's losses that came on the back of weaker than expected December retail sales data, and got an additional boost from better than expected Empire State Manufacturing Index. The buck, however, lost its strength after other data from the US showed that the industrial production declined by 0.6% in January and the capacity utilization fell to 78.2% from 78.8% previous. 

The USD was further pressurized by the fact that the US President Donald Trump declared a national emergency on border security and was seen as one of the key factors behind the pair's goodish intraday turnaround. The pair built on the momentum through the Asian session on Monday, albeit further gains are likely to remain limited amid absent relevant market moving economic releases and the President’s Day holiday in the US.

From a technical perspective, the ongoing positive momentum beyond 23.6% Fibonacci retracement level of the 1.1514-1.1234 recent downfall failed to surpass the 200-hour SMA hurdle. With technical indicators on hourly charts gaining positive traction, a sustained move beyond the mentioned barrier should pave the way for a move towards 50% Fibonacci retracement level, around the 1.1375 region, also nearing 50-day SMA key hurdle.

On the flip side, the 1.1300 handle now seems to act as immediate support, which if broken might turn the pair vulnerable to resume its well-established bearish trend and aim towards challenging multi-month lows, around the 1.1215 region. A follow-through selling has the potential to continue dragging the pair, even below the 1.1200 round figure mark, towards its next support near mid-1.1100s.