EUR/USD Forecast: Investors seemed reluctant from placing fresh directional bets

• EUR/USD reversed an early dip to five-week lows amid some renewed USD selling bias.
• Mostly softer-than-expected US macro data exerted some additional pressure on the USD.
• The price-action warrants some caution before positioning for any firm near-term direction.

The EUR/USD pair witnessed a dramatic intraday turnaround on Thursday and rallied over 100 pips from 50-day SMA support, or five-week lows. The US dollar built on the post-FOMC short-covering move and continued gaining traction through the first half of the trading action on Thursday. It is worth recalling that the Fed on Wednesday gave no indications of additional stimulus and also offered an upbeat assessment of the US economic recovery. Adding to this, a weaker risk tone further boosted the greenback's relative safe-haven status and contributed to the pair's early slide.

Despite the supporting factors, the USD struggled to preserve its early gains, rather witnessed some fresh selling at higher levels. The intraday USD downtick picked up pace following the release of unimpressive US macro data. In fact, Initial Weekly Jobless Claims for the week ended September 11 fell to 860K from 893K in the previous week but missed consensus estimates pointing to a reading of 850K. Separately, the Philly Fed Manufacturing Index edged lower to 15 in September from 17.2 previous, while Building Permits and Housing Starts both fell short of market expectations.

The pair finally settled near the top end of its daily trading range, snapping two consecutive days of the losing streak, albeit lacked any strong follow-through. The pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range through the Asian session on Friday. In the absence of any major market-moving economic releases from the Eurozone, the pair remains at the mercy of the USD price dynamics. Later during the early North American session, the release of the Michigan Consumer Sentiment Index for September will be looked upon for some trading impetus on the last day of the week.

Short-term technical outlook

From a technical perspective, the overnight sharp rebound from 50-day SMA points to the emergence of some fresh buying interest. However, the lack of any strong follow-through buying warrants some caution for bullish traders. Hence, any subsequent positive move is more likely to confront a stiff resistance near the 1.1900 mark. That said, some follow-through buying might trigger some near-term short-covering move and push the pair further beyond the 1.1935-40 supply zone, towards reclaiming the key 1.2000 psychological mark.

On the flip side, the 1.1800 mark now seems to protect the immediate downside, below which the pair could slide back to the 1.1750 horizontal support. Sustained weakness below, leading a subsequent breakthrough the 1.1735 area (50-DMA), could accelerate the fall further towards August monthly swing lows, around the 1.1700-1.1695 region. Failure to defend the 1.1700 mark might now turn the pair vulnerable to prolong the recent corrective slide towards the 1.1600 round-figure mark.