EUR/USD Forecast: Bulls seem to lose the grip ahead of key central bank meetings

• EUR/USD remains on the defensive for the fourth straight day amid a modest USD strength.
• The overnight rise in US bond yields and a softer risk tone underpin the greenback.
• The downside seems limited as traders await the key FOMC/ECB monetary policy meetings.

The EUR/USD pair struggled to preserve its modest intraday gains on Monday and retreated around 75 pips from the daily peak. The pair remains on the defensive below mid-1.0800s through the Asian session on Tuesday and is pressured by a modest US Dollar strength. The prevalent cautious mood - depicted by a generally softer tone around the equity markets - benefits the safe-haven buck. Despite China's move to scale back its strict zero-COVID policy, the worst yet COVID-19 outbreak in the country has been fueling concerns about a robust economic recovery and weighing on investors' sentiment. Apart from this, the overnight increase in the US Treasury bond yields is another factor underpinning the Greenback.

The uptick in the US bond yields could be attributed to some repositioning trade amid the uncertainty over the Fed's future rate-hike path. The markets seem convinced that the US central bank will further slow the pace of its rate-hiking cycle and deliver a smaller 25 bps lift-off at the end of a two-day policy meeting on Wednesday. That said, the recent US macro data pointed to a resilient economy and backed the case for the Fed to stick to its hawkish stance for longer. Hence, the market focus will be on the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. This, in turn, should influence the USD price dynamics and provide a fresh impetus to the EUR/USD pair.

This will be followed by the European Central Bank (ECB) meeting on Thursday, which will play a key role in determining the next leg of a directional move for the EUR/USD pair. Given the recent hawkish commentary by several ECB officials, expectations for additional jumbo rate hikes in the coming months suggest that the path of least resistance for the major is to the upside. Heading into the critical central bank event risks, traders on Tuesday might take cues from the release of the Preliminary Eurozone Q4 GDP print. Later during the early North American session, the US economic docket, featuring Chicago PMI and the Conference Board's Consumer Confidence Index, might contribute to producing short-term trading opportunities.

Technical Outlook

From a technical perspective, the overnight downtick dragged the EUR/USD pair below a nearly three-week-old ascending trend-line. Spot prices, however, manage to hold above the 100-period SMA on the 4-hour chart. The latter is currently pegged near the 1.0820 region and should act as a pivotal point for intraday traders. A convincing break below might prompt technical selling and drag the pair further below the 1.0800 mark towards testing the 1.0780-1.0775 horizontal resistance breakpoint. Some follow-through selling should pave the way for an extension of the corrective decline towards the next relevant support near the 1.0700 mark.

On the flip side, the 1.0900 mark now becomes an immediate hurdle ahead of the multi-month peak, around the 1.0925-1.0930 region touched last week. The latter coincides with the April 2022 peak, which, if cleared decisively, will be seen as a fresh trigger for bulls and allow the EUR/USD pair to reclaim the 1.1000 psychological mark. The momentum could extend further towards the 1.1070 intermediate resistance en route to the 1.1100 round figure.