EUR/USD Forecast: Bulls at the mercy of USD price dynamics ahead of Fed meeting

The EUR/USD pair caught some fresh bids on the last day of the week and was being supported by the emergence of some fresh selling around the US dollar. Doubts over the next round of the US fiscal stimulus measures turned out to be one of the key factors that undermined the greenback. It is worth recalling that the US Senate on Thursday rejected a Republican bill that would have provided around $300 billion in new coronavirus aid. Democratic prevented the bill from advancing as they have been pushing for far more funding amid the coronavirus pandemic.

Conversely, the shared currency continued benefitting from not so dovish (rather hawkish) ECB policy update. The ECB noted that the incoming data since the last policy meeting in July suggest a strong rebound in activity, broadly in line with expectations. Adding to this, the ECB President Christine Lagarde said that there was no need to over-react to the euro's recent appreciation. The euro bulls seemed rather unaffected and largely shrugged off not so optimistic comments by the ECB Chief Economist Philip Lane, saying that the recent appreciation of the common currency has dampened the inflation outlook.

On the economic data front, the headline US CPI rose MoM in August as compared to 0.3% expected. Adding to this, the yearly rate accelerated to 1.3% from 1.0% previous. The core CPI (excluding energy and food costs) improved to 1.7% YoY from 1.6% in the previous month. The hotter-than-expected US consumer inflation figures failed to impress the USD bulls or provide any meaningful impetus to the major. Despite the supporting factor, the uptick lacked any strong bullish conviction and the pair finally settled nearly unchanged for the week, forming an indecisive Doji candlestick pattern.

Meanwhile, news that AstraZeneca resumed its phase-3 trial revived hopes for a coronavirus vaccine and provided a strong lift to the global risk sentiment. This, in turn, dented the greenback's relative safe-haven status and assisted the pair to regain some positive traction on the first day of a new trading week. However, the upside is likely to remain limited amid cautiousness ahead of the latest FOMC monetary policy meeting. The Fed is scheduled to announce its policy decision on Wednesday, which will now play a key role in influencing the near-term USD price dynamics and provide some fresh directional impetus to the major.

Short-term technical outlook

From a technical perspective, nothing seems to have changed much for the pair and the lack of any strong follow-through buying favours bearish traders. That said, it will still be prudent to wait for a sustained weakness below the 1.1750 strong horizontal support before positioning for any further depreciating move towards August monthly swing lows, around the 1.1700-1.1695 region. Failure to defend the 1.1700 mark will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent corrective slide from levels beyond the key 1.2000 psychological mark.

On the flip side, any meaningful positive move might now confront stiff resistance near the 1.1900 mark. This is followed by the 1.1935-40 supply zone, which if cleared decisively will negate any near-term bearish bias. Bulls might then make a fresh attempt to push the pair back above the 1.2000 mark. Some follow-through buying will negate any near-term bearish bias and pave the way for the resumption of the prior/well-established bullish trend.