EUR/USD Forecast: Bulls lack conviction above 200-DMA, German CPI/US macro data in focus

• The common currency gained traction after the EU Commission proposed €750 billion virus recovery fund.
• EUR/USD rallied around 100 pips, albeit struggled to find acceptance above the very important 200-DMA.
• Traders look forward to the flash German CPI, important US macro releases for some meaningful impetus.

The EUR/USD pair had good two-way price swings on Wednesday and was influenced by a combination of diverging forces. Concerns about a further escalation in the US-China tensions forced investors to take refuge in the safe-haven US dollar and exerted some initial downward pressure on the major. The early downtick turned out to be short-lived, rather was quickly bought into after the European Union (EU) Commission proposed a €750 billion for the coronavirus recovery fund.

The pooled relief program includes €500 billion in grants and €250 billion in loans, aimed at helping the worst-hit economies of member states. Separately, reports indicated that the next EU budget proposal will be worth €1.1 trillion and will include the coronavirus recovery fund. The shared currency strengthened across the board in reaction to the headlines and led to a strong intraday rally of nearly 100 pips, lifting the pair beyond the key 1.10 psychological mark.

However, the fact that the proposal still requires the backing of all 27 member states, coupled with a broad-based USD strength kept a lid on any runaway rally for the major. Bulls struggled to find acceptance above the very important 200-day SMA and the pair finally settled around 30 pips off daily swing high level of 1.1031.

Meanwhile, the global risk sentiment remained well supported by the recent optimism over a potential COVID-19 vaccine and hopes of a sharp V-shaped recovery for the global economy. The upbeat market mood partly offset worsening US-China relations and held back the USD bulls from placing aggressive bets. This, in turn, continued lending some support and lifted the pair to the highest level in almost two months during the Asian session on Thursday.

Moving ahead, market participants now look forward to the release of the flash version of the German CPI for some impetus. Later during the early North American session, a slew of important US macro data will influence the USD price dynamics and produce some meaningful trading opportunities. Thursday's US economic docket highlights the release of the second estimate of Q1 GDP, Durable Goods Orders for April and the Initial Weekly Jobless Claims.

Short-term technical outlook

From a technical perspective, the overnight positive move lifted the pair beyond a multi-week trading range resistance and shifted the near-term bias back in favour of bullish traders. A sustained strength above 200-DMA will reinforce the breakout and set the stage for a further near-term appreciating move. The pair might then aim to reclaim the 1.1100 round-figure mark before eventually darting towards late-March swing highs resistance near the 1.1145-50 supply zone.

On the flip side, any pullback below the 1.1000 mark might now be seen as a buying opportunity near the 1.0980 level, which should help limit any meaningful corrective slide. That said, some follow-through weakness could accelerate the fall further towards the 1.0930 support zone en-route the 1.0900 mark. Failure to defend the mentioned support levels will negate the bullish outlook and turn the pair vulnerable to slide back towards challenging the 1.0800 round-figure mark.