EUR/USD Forecast: Bullish bias remains amid hopes for more US fiscal stimulus

The EUR/USD pair climbed to one-and-half-week tops on Friday, albeit lacked any strong follow-through and remained capped below the 1.2200 mark. The shared currency was underpinned by a slight hawkish tweak by the European Central Bank (ECB) on the Pandemic Emergency Purchase Program (PEPP). At the post-meeting press conference on Thursday, the ECB President Christine Lagarde said the central bank might not need to exhaust the €1.85 trillion PEPP envelope if favourable financing conditions can be maintained.

The euro found additional support from better-than-anticipated German Services PMI, which came in at 46.8 for January as against consensus estimates pointing to a fall to 45.3 from 47.0 previous. Meanwhile, the gauge for the German manufacturing sector missed expectations and dropped to 57 during the reported month from 58.3 in December. Separately, the Eurozone flash manufacturing PMI also surpassed market expectations but was largely negated by a further contraction in the region's dominant services industry.

On the other hand, a slight deterioration in the global risk sentiment provided a modest lift to the safe-haven US dollar and capped gains for the pair. Given that a lot of optimism is already priced in the markets, investors turned cautious amid concerns about the ever-increasing coronavirus cases and the discovery of new variants. In fact, reports indicated that the UK COVID variant was not only highly infectious but perhaps more deadly than the original strain. This, in turn, kept a lid on any meaningful upside for the major.

That said, expectations of $1.9 trillion fiscal stimulus plan to help revive the US economy, to a larger extent, helped offset the market worries. This was evident from a fresh leg up in the US equity futures, which assisted the pair to gain some positive traction on the first day of a new trading week. Market participants now look forward to the German IFO survey results for a fresh impetus. Apart from this, a scheduled speech by the ECB President Christine Lagarde and policymaker Weidmann might influence the shared currency.

There isn't any major market-moving economic data due for release from the US on Monday. Hence, developments surrounding the coronavirus saga and the US fiscal stimulus headlines will play a key role in driving the sentiment surrounding the USD. This will further be looked upon to grab some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, bulls might still wait for a sustained move beyond the 1.2200 round-figure mark before placing fresh bets. The mentioned is followed by resistance near the 1.2235-40 region, which if cleared decisively will set the stage for a move towards reclaiming the 1.2300 mark. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for the resumption of the prior/well-established short-term bullish trend.

On the flip side, the 1.2130 level now seems to protect the immediate downside ahead of the 1.2100 mark. Failure to defend the mentioned support levels might prompt some technical selling and turn the pair vulnerable to accelerate the fall towards the 1.2055-50 support zone. The downward trajectory could further get extended towards the key 1.2000 psychological mark, which should act as a key pivotal point for short-term traders.