EUR/USD Forecast: likely to consolidate ahead of next week’s ECB meeting

The EUR/USD pair staged a goodish rebound from weekly lows, touched on in the previous session and gradually inched back above mid-1.2200s during the early Asian session on Friday. Renewed USD weakness, with the key US Dollar Index struggling near three-year lows, was seen as one of the key factors driving the pair higher. 

Thursday’s greenback weakness came on the back of growing concerns of a looming government shutdown and remained unabated following the release of mixed US economic data. The US House of Representatives did pass a bill to fund government operations through Feb. 16 but the bill still needs to be approved by the Senate, where it faces an uncertain future.

Meanwhile, the shared currency shrugged off the recent jawboning by several ECB officials and in absence of any fresh fundamental, the USD price dynamics might continue to act as an exclusive driver of the pair's momentum on the last trading day of the week. 

However, the key focus would be on next week's ECB monetary policy meeting. With the pair holding near multi-year lows, investors are likely to turn cautious heading into the key event risk and might eventually lead to some range-bound trading action in the near-term.

From a technical perspective, the pair rebounded from 38.2% Fibonacci retracement level of 1.1916-1.2323 latest upsurge and has been steadily moving higher alongside an ascending trend-line support. A follow-through momentum beyond 1.2270 level could lift the pair back above the 1.2300 handle towards retesting the recent swing highs resistance near the 1.2320-25 region.

On the flip side, any meaningful retracement from current levels is likely to find support near 23.6% Fibonacci retracement level, around the 1.2225-20 region, below which the pair could again drop back below the 1.2200 handle and head towards retesting weekly lows support near the 1.2165 area, coinciding with 38.2% Fibonacci retracement level.