EUR/USD Forecast: Bulls looking out for overdue dollar correction

Following a brief consolidation phase during the Asian trading hours on Thursday, EUR/USD has met fresh bearish pressure and plunged to its lowest level since January 2017 at 1.0481. The pair, however, staged a rebound in the early European morning and was last seen trading above 1.0550. The positive shift witnessed in risk sentiment and profit-taking ahead of the key US data could open the door for additional recovery gains toward 1.0600.

Supported by a 4% jump seen in the benchmark 10-year US Treasury bond yields, the US Dollar Index rose 0.7% on Wednesday. Just when it looked like the dollar rally was losing steam in the Asian session on Thursday, the Bank of Japan's (BOJ) decision to leave its policy settings unchanged triggered another wave of dollar-buying and caused EUR/USD to edge lower.

Nevertheless, EUR/JPY also rose sharply when European traders entered the market, suggesting that the shared currency managed to capture some of the outflows out of the Japanese yen. Commenting on the policy outlook, Bank of Japan Governor Haruhiko Kuroda said western central banks were normalising their policy but Japan was not in such a situation given the price trend and the state of the economy.

Later in the session, the US Bureau of Economic Analysis will announce its first estimate of the annualized Gross Domestic Product (GDP) growth for the first quarter. The market consensus points to an expansion of only 1.1% following the impressive 6.9% growth recorded in the fourth quarter of 2021. 

Although it's difficult to say whether or not the greenback has reached the end of its rally, market participants could see a disappointing US GDP print as an opportunity to book some of their profits before the end of the month and help EUR/USD push higher. On the other hand, an upbeat growth figure could make it difficult for the pair to gain traction. Nevertheless, US stock index futures are up between 0.7% and 2% in the European session and a strong upsurge in Wall Street's main indexes should limit the dollar's gains in the short term.

EUR/USD Technical Analysis

The one-week-old descending trend line forms the initial resistance at 1.0600. In case the pair rises above that level and starts using it as support, it could target 1.0650 (20-period SMA) and 1.0700 (psychological level, static level) next.

On the downside, the first support is located at 1.0500 (psychological level, static level) before 1.0460 (static level) 1.0400 (psychological level).