EUR/USD Analysis: Struggles near ascending channel support amid ECB’s exchange rate concerns

The EUR/USD pair failed to capitalize on Friday's intraday bounce of around 60 pips and edged lower on Monday amid relatively thin liquidity conditions due to the US Labor Day holiday. The shared currency was weighed down by the ECB’s concerns over the exchange rate level and fairly underwhelming Eurozone data. In fact, the German industrial production rose for the third straight month in July, by 1.2% during the reported month, but was well below consensus estimates pointing to a growth of 4.8%. On a yearly basis, the output declined by 10% as against a 12.1% advance anticipated.

On the other hand, the US dollar resumed its advance after being hit slightly by Friday's mixed US monthly jobs report (NFP). This, in turn, further contributed to the pair's modest slide. The downside, however, remained limited, at least for the time being, as investors seemed reluctant to place any aggressive bets ahead of the upcoming ECB monetary policy decision on Thursday. The market attention will be on the ECB’s reaction to the recent strengthening of the euro, which might have already opened the door for additional stimulus in the coming months.

In the meantime, Tuesday's publication of the German Trade Balance figures for July, revised Eurozone Q2 GDP print and the Eurozone Employment Change will be looked upon for some impetus. Barring any major divergence from the expected figures, the data is unlikely to have much of an impact on the major. Moreover, there isn't any major market-moving economic data due for release from the US, which might further contribute to a subdued/range-bound price action on Tuesday.

Short-term technical outlook

From a technical perspective, nothing has changed much for the pair and the range-bound price action warrants some caution before positioning for the next leg of a directional bias. Bears are likely to wait for a convincing breakthrough one-month-old ascending channel support near the 1.1800-1.1790 region. Below the mentioned support, the pair is likely to accelerate the fall further towards the 1.1700 round-figure mark. The latter nears the August monthly swing lows and any subsequent weakness will set the stage for an extension of the recent corrective slide from 28-month tops – levels just above the key 1.2000 psychological mark.

On the flip side, immediate resistance is pegged near the 1.1860-65 region, above which the pair could aim back to the 1.1900 mark. Some follow-through buying beyond the 1.1935-40 hurdle has the potential to lift the pair back towards the 1.2000 mark en-route the top end of the trend-channel. A decisive break through the channel barrier, around the 1.2015-20 region, should pave the way for the resumption of the recent strong appreciating move.