EUR/USD Forecast: Bulls take a brief pause as the focus shifts to ECB decision

The bearish pressure surrounding the US dollar remained unabated on Wednesday and allowed the EUR/USD pair to prolong the bullish trajectory for the seventh consecutive session. Hopes for a sharp V-shaped global economic recovery continued boosting investors' appetite for riskier assets, which, in turn, led to yet another day of a broad-based USD weakness. Investors found another reason to favour the shared currency after the final version of the Eurozone Services PMI prints for May were revised higher. The gauge indicated another devastating contraction in activity, though there were signs that the worst could be already over.

From the US, the ADP report showed that private-sector employment in the US declined by 2.76 million in May, much better than 9 million expected. Adding to this, the US ISM Non-Manufacturing PMI came in at 45.4 for May as compared to 44.0 anticipated but once again failed to provide any respite to the USD bulls or hinder the pair's strong momentum to the highest level since March 12. The pair touched an intraday high level of 1.1258, albeit concerns about worsening US-China relations drove some haven flows towards the greenback and prompted some profit-taking amid extremely overbought conditions on short-term charts.

Relations between the world's two largest economies soured further after the US suspended passenger flights of four Chinese airlines to and from the United States effective from June 16. This comes after China barred American carriers from re-entering China and fueled worries about a further escalation in the US-China tensions. Apart from this, some repositioning trade ahead of the upcoming key event risk – the latest monetary policy update by the European Central Bank (ECB) – led to some follow-through pullback during the Asian session on Thursday.

The ECB is widely expected to expand the size of its €750 billion Pandemic Emergency Purchase Programme (PEPP), probably by around €500 billion. The markets might have already priced in the increase in the PEPP and given that there is very little chance of a positive surprise in terms of the total size, there seems to some risk of a near-term correction for the common currency. Investors will also keep a close watch on the updated economic projections, which followed by the ECB President Christine Lagarde's comments at the post-meeting press conference will play a key role in determining the pair's next leg of a directional move.

Short-term technical outlook

From a technical perspective, any meaningful pullback below the 1.1200 mark now seems to attract some dip-buying and remain limited near the 1.1165 area. The mentioned level marks the 61.8% Fibonacci level of the 1.1497-1.0636 downfall, which should now act as a key pivotal point for short-term traders. A convincing breakthrough might prompt some aggressive long-unwinding trade and accelerate the fall back towards the 1.1100 round-figure mark en-route 50% Fibo. level, around the 1.1070 region.

On the flip upside, the 1.1240-50 region now seems to act as an immediate resistance, above which the pair seems all set to make a move towards reclaiming the 1.1300 round-figure mark. Some follow-through buying has the potential to lift the pair further towards the 1.1355-60 intermediate hurdle ahead of the 1.1400 mark. The momentum could further get extended to 2020 daily closing highs, around the 1.1440 region.