EUR/USD Forecast: False breakout shifts the bias back in favour of bears

• EUR/USD failed to preserve Thursday’s early gains to four-week tops amid resurgent USD demand.
• Concerns about surging COVID-19 cases boosted the safe-haven USD and exerted some pressure.

The EUR/USD pair witnessed a dramatic turnaround on Thursday and dived around 90 pips from four-week tops, ending the day below the 1.1300 mark. The pair initially built on the previous day's positive move and climbed further beyond a key barrier near mid-1.1300s, albeit struggled to sustain at higher levels. The latest optimism over a swift global economic recovery faded rather quickly after the US reported over 60,000 new coronavirus cases, the highest single-day tally reported so far by any country. Adding to this, some states, including Florida, Texas and California, reported a record number of new cases. The US equity markets took a turn for the worse and provided a strong boost to the safe-haven USD.

The pair settled near the lower end of its daily trading and remained depressed through the Asian session on Friday amid the prevalent risk-off mood. Given that the coronavirus outbreak showed no signs of abating, the anti-risk flow might continue to underpin traditional safe-haven currencies. Moreover, worries that the US decision to sanction Chinese officials over human rights violations in Uighur province may lead to further escalation of Sino-US tensions could further weigh on the global risk sentiment and keep the euro bulls on the defensive. In the absence of any major market-moving economic releases, developments surrounding the coronavirus saga will continue to play a key role in influencing the pair's momentum on the last day of the week.

Short-term technical outlook

From a technical perspective, the overnight sharp pullback might have already shifted the near-term bias back in favour of bearish traders. A subsequent weakness below mid-1.1200 level will reinforce the negative outlook and prompt some technical selling. The pair might then accelerate the slide further towards a three-week-old ascending trend-line support, currently near the 1.1220 zone. This is closely followed by the 1.1200 mark and the 1.1180-70 region, which if broken will set the stage for a further near-term depreciating move back towards the 1.1100 mark en-route the very important 200-day SMA, around the 1.1045 region.

On the flip side, the 1.1300 round-figure mark might now act as an immediate resistance, above which bulls are likely to make a fresh attempt to clear the 1.1350 strong barrier. A convincing breakthrough, leading to a subsequent strength beyond the overnight swing high, around the 1.1370 region, should lift the pair further towards the 1.1400 mark. The momentum could further get extended towards retesting YTD tops, just ahead of the key 1.1500 psychological mark.