EUR/USD Forecast: Dovish ECB awaited for bearish confirmation

The EUR/USD pair remained depressed through the first half of the trading action on Wednesday and dropped to four-week lows, around mid-1.1700s. News that AstraZeneca paused trials for its coronavirus vaccine weighed on investors' sentiment and drove some haven flows toward the US dollar, which, in turn, exerted some pressure on the major. The greenback, however, struggled to preserve its early gains, instead witnessed some fresh selling at higher levels amid a strong rebound in the US equity markets. This coupled with a report that the European Central Bank will adopt a more optimistic tone on its economic outlook prompted some short-covering move around the shared currency.

Bloomberg, citing sources with knowledge of the matter, said the ECB will revise its 2020 GDP expectations in its updated projections higher amid stronger private consumption. The pair recovered around 80 pips intrada, albeit lacked any strong follow-through. Given that officials have shown concerns over the common currency's recent appreciation, investors seemed reluctant to place any aggressive bets ahead of the much-awaited ECB monetary policy meeting. Nevertheless, the pair finally settled with modest gains, snapping six consecutive days of the losing streak and held steady comfortably above the 1.1800 mark through the Asian session on Thursday.

The ECB is scheduled to announce its decision later today and is widely expected to keep its monetary policy setting unchanged. This will be followed by the post-meeting press conference, where investors will closely monitor any comments on the euro. Apart from this, the spotlight will be on the ECB's new economic projections, which will play a key role in driving the shared currency in the near-term and provide a fresh directional impetus for the major.

Short-term technical outlook

From a technical perspective, the pair this week confirmed a rising channel breakdown, though bulls showed some resilience near 200-period EMA on the 4-hourly chart. This makes it prudent to wait for some strong follow-through selling below the 1.1760-50 region before positioning for any further near-term depreciating move. The pair might then accelerate the fall further towards August monthly swing lows support, around the 1.1700-1.1695 region. Failure to defend the 1.1700 handle will be seen as a fresh trigger for bearish traders and set the stage for a further near-term depreciating move, possibly towards challenging the 1.1500 mark.

On the flip side, any subsequent positive move beyond the 1.1855-60 horizontal zone is likely to confront a 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 and assist bulls to make a fresh attempt to push the pair beyond the key 1.2000 psychological mark. The latter coincides with the top end of the mentioned channel and should now act as a key pivotal point for the pair's next leg of a directional move.