EUR/USD Forecast: Bears now eyeing a sustained break below 1.1700 mark

The EUR/USD pair witnessed some aggressive selling on the first day of a new trading week and dived to six-week lows amid a strong pickup in the US dollar demand. Rising odds of fresh lockdown measures to curb the second wave of coronavirus outbreak triggered a fresh wave of the global risk aversion trade. The anti-risk flow was evident from a selloff in the equity markets, which, in turn, provided a strong boost to the greenback's status as the global reserve currency.

Apart from this, the shared currency was further weighed down by not so optimistic comments by the ECB President Christine Lagarde, saying that the economic recovery remains very uncertain, uneven and incomplete. Lagarde reiterated that the ECB stands ready to adjust all of its instruments as appropriate and that a higher exchange rate put prices under downside pressure. The combination of factors led to steep intraday fall to the 1.1730 region, though the pair showed some resilience at lower levels and finally settled around 40 pips off daily lows.

The USD bulls turned cautious amid expectations that the Fed Chair Jerome Powell will reaffirm to keep interest rates lower for longer during his congressional testimony later this Tuesday. This makes it prudent to wait for some strong follow-through selling before traders start positioning for any further near-term depreciating move. In the meantime, Tuesday's release of the preliminary estimate of Eurozone Consumer Confidence for September, along with the second-tier US economic data will be looked upon for some trading impetus. The US economic docket features the release of Existing Home Sales and Richmond Manufacturing Index, which might influence the USD price dynamics and help traders to grab some short-term opportunities.

Technical outlook

From a technical perspective, the set-up now seems tilted in favour of bearish traders and supports prospects for further downside. Hence, some follow-through weakness towards August monthly swing lows, around the 1.1700-1.1695 region, now looks a distinct possibility. Failure to defend the 1.1700 mark will be seen as a fresh trigger for bearish traders and turn the pair vulnerable to prolong the recent corrective slide further towards testing the 1.1600 round-figure mark.

On the flip side, the 1.1800 mark becomes immediate strong resistance. Any subsequent positive move might now be seen as a selling opportunity and remain capped near the 1.1850-60 supply zone. That said, a sustained move beyond might trigger a short-covering move and push the pair further towards the 1.1900 mark en-route the next major hurdle near the 1.1935-40 region. The momentum could further get extended towards the key 1.2000 psychological mark.