EUR/USD forecast: Likely to consolidate ahead of the Fed decision on Wednesday

The EUR/USD pair added to the post-ECB rally from 2019 lows and continued gaining some follow-through positive traction through the mid-European session on Friday. The pair climbed to near three-week tops but ran into some resistance near the 1.1110 region amid renewed US Dollar buying interest. Against the backdrop of encouraging trade-related developments, the greenback remained well supported by the recent upsurge in the US Treasury bond yields. In fact, the yield on the benchmark 10-year bond posted its largest rally since November 2016 and climbed to the highest since August 2, which eventually turned out to be one of the key factors underpinning the buck.

Upbeat US data boosted the USD

The USD got an additional boost following the release of stronger headline US retail sales figures, rising 0.4% to in August as against 0.2% increase anticipated. This was accompanied by an upward revision of the previous month's reading from 0.7% to 0.8% growth, which largely offset a slight disappointment from the core figures (ex-auto). Later, the preliminary estimate of the University of Michigan's Consumer Confidence Index came in at 92.0 for September, better-than 90.9 expected and sharply higher from August's 89.8, and remained supportive of the late pick up in the USD demand. The pair finally ended the day with only modest gains, also marking its second consecutive week of positive close.
 
Meanwhile, the latest escalation in geopolitical tensions in the Middle East, following an attack on Saudi Arabian refining facilities over the weekend, further benefitted the greenback's relative safe-haven status against its European counterpart and led to a subdued/range-bound price action at the start of the new trading week. Yemen's Iran-backed Houthi rebel group claimed responsibility for the attack, which knocked out more than 5% of global oil supply, but the US pointed the finger directly at Iran and triggered a fresh wave of the global risk-aversion trade.
 
The downside, however, seemed cushioned as investors are likely to refrain from placing any aggressive bets ahead of this week's key event risk - the highly anticipated FOMC meeting on September 17-18. The Fed is widely expected to cut interest again on Wednesday, though opinions on aggressive easing remain divided and should lead to some unusual volatility during the second half of this week's trading action. In the meantime, the pair seems more likely to oscillate in a range amid absent relevant market-moving economic releases on Monday – either from the Euro-zone or the US.

Short-term technical outlook

From a technical perspective, the pair on Friday retreated from an intermediate resistance near the 1.1110 region, which should now act as a key pivotal point for bullish traders. Above the mentioned hurdle, the pair seems all set to aim towards challenging 100-day SMA – around the 1.1180 region – en-route the 1.1200 round figure mark. The momentum could further get extended towards the 1.1230 supply zone ahead of the very important 200-day SMA barrier near the 1.1260 region.
 
On the flip side, immediate support is pegged near the 1.1050-45 region, which if broken might prompt some technical selling and accelerate the slide back towards the 1.1010-1.1000 region. Failure to defend the 1.10 handle will negate prospects of any further recovery and turn the pair vulnerable to slide back towards the multi-year swing lows support - around the 1.0925 area.