EUR/USD Analysis: Struggles to make it back above 1.1900 mark ahead of FOMC

A combination of supporting factors assisted the EUR/USD pair to gain some follow-through traction through the first half of the trading action on Tuesday. The optimism over a potential vaccine for the highly contagious coronavirus disease remained supportive of the upbeat market mood. The global risk sentiment got an additional boost from stronger-than-expected Chinese macro data, which reinforced expectations for a V-shaped recovery for the world's second-largest economy. This, in turn, weighed on the US dollar's relative safe-haven status and assisted the pair to build on its recent bounce from the vicinity of mid-1.1700s.

The shared currency was further supported by encouraging data from the Eurozone. In fact, the German ZEW Economic Sentiment unexpectedly rose to 77.4 in September from 71.5. The data signalled that experts continue to expect a noticeable recovery for the Eurozone's largest economy. Adding to this, the Eurozone ZEW Economic Sentiment climbed to 73.9, which pushed the pair back to the 1.1900 mark. The momentum, however, lacked any strong follow-through and quickly ran out of the steam on the back of a late USD rebound.

The greenback found some support following the release of Empire State Manufacturing Index, which jumped to 17.0 in September from 3.7 previous and easily surpassed market expectations. The reading was strong enough to offset the disappointing release of the US Industrial Production figures, which posted a modest 0.4% growth in August as compared to 3% recorded in the previous month. Apart from this, some repositioning trade ahead of the highly anticipated FOMC decision on Wednesday prompted traders to lighten their bearish USD bets.

The pair retreated around 60 pips from daily tops and finally settled near the lower end of its daily trading range, albeit lacked any strong follow-through. The pair held steady below mid-1.1800s through the Asian session on Wednesday and remains at the mercy of the USD price dynamics in the absence of any major market-moving economic releases from the Eurozone. Meanwhile, the US economic docket highlights the release of Monthly Retail Sales data for August, which will be looked upon for some meaningful trading impetus ahead of the key central bank event.

Short-term technical outlook

From a technical perspective, the pair’s inability to gain any meaningful traction beyond the 1.1900 mark points to a possible near-term bullish exhaustion. That said, any meaningful slide towards the 1.1800 mark might still be seen as a buying opportunity. This is followed by strong horizontal support near mid-1.1700s, which if broken will be seen as a fresh trigger for bearish traders. The pair might then accelerate the fall towards August monthly swing lows, around the 1.1700-1.1695 region, which if broken decisively will set the stage for an extension of the recent corrective slide from levels beyond the key 1.2000 psychological mark.

On the flip side, the 1.1900 mark might continue to act as immediate strong resistance and any subsequent positive move is likely to meet with some fresh supply near the 1.1935-40 region. A sustained strength beyond will negate any near-term bearish bias and assist bulls to make a fresh attempt to push the pair back above the 1.2000 mark.