EUR/USD Forecast: Bullish potential intact amid US stimulus/Brexit optimism

The EUR/USD pair caught some fresh bids on the first day of a new trading week and continued scaling higher through the early European session. The intraday positive move was exclusively sponsored by sustained selling around the US dollar, which remained depressed amid the prevalent risk-on environment. The global risk sentiment remained well supported by the latest optimism over a last-minute Brexit deal and got an additional boost after the US President Donald Trump finally signed a $2.3 trillion pandemic aid and spending package.

The bill restored unemployment benefits to millions of Americans and averted a partial federal government shutdown that would have started on Tuesday. Also supporting the sentiment was the recent rollout of vaccines for the highly contagious COVID-19. That said, concerns about the discovery of a new faster-spreading variant of the coronavirus might temper enthusiasm. This, along with a goodish pickup in the US Treasury bond yields, might extend some support to the greenback and keep a lid on any runaway rally for the major, at least for now.

Hence, the key focus will remain on fresh developments surrounding the coronavirus saga, which might infuse some volatility in the financial markets and provide some impetus to the pair. Meanwhile, there isn't any major market-moving economic data due for release on Monday, either from the Eurozone or the US. Moreover, trading volumes are expected to remain light in another holiday-shortened week. This, in turn, warrants some caution for aggressive bullish traders and before positioning for any further near-term appreciating move for the pair.

Short-term technical outlook

From a technical perspective, the pair has been oscillating between two converging trend-lines, which constituted the formation of a symmetrical triangle. The latest leg up already seems to have confirmed a bullish breakout through the triangle and paves the way for additional gains. Hence, a move back towards retesting the 1.2270-75 region, over two-and-half-year tops touched on December 17, looks a distinct possibility. Some follow-through buying beyond the 1.2300 round-figure mark has the potential to push the pair further towards the 1.2340 resistance zone.

On the flip side, any meaningful pullback towards the 1.2200 mark might still be seen as a buying opportunity and remain limited near the triangle support, around the 1.2185 region. That said, a subsequent fall might prompt some technical selling and accelerate the slide back towards the 1.2130-25 congestion zone, which should act as a key pivotal point for short-term traders and assist the pair's next leg of a directional move.