EUR/USD Forecast: More downside below 1.1300 mark, US CPI eyed ahead of ECB on Thursday

The EUR/USD pair continued with its good two-way action on Tuesday and was exclusively driven by the US Dollar price dynamics. Renewed optimism over improving US-China trade relations initially weighed on the greenback and assisted the pair to gain some positive traction. The up-move, however, faced rejection amid a goodish pickup in the USD demand, supported by rebounding US Treasury bond yields. 

The buck got an additional boost following the release of stronger than expected core US PPI figures, coming in to show that a measure of wholesale inflation that strips out food, energy and trade services rose 0.3% in November and the yearly rate of change remained elevated at 2.8% as against 2.5% expected.

The shared currency was further weighed down by concerns over Italy's budget deadlock with the European Commission, especially after country's finance minister Giovanni Tria said that the government won't make major changes to the budget. The pair tumbled to over one-week lows but once again managed to find some support near the 1.1300 handle, with a fresh wave of risk-on trade providing a minor lift during the Asian session on Wednesday.

There isn't any major market-moving economic data due for release from the Euro-zone, while the US economic docket highlights the release of latest consumer inflation figures for November and will be looked upon for some meaningful trading impetus. The focus, however, will be on Thursday's ECB monetary policy update and investors might remain non-committal, leading to a subdued/range-bound price action ahead of the key event risk.

From a technical perspective, overnight slide reaffirmed previous session's fake break-out and thus, increases the pair's vulnerability to resume with its prior depreciating move. A follow-through selling below the 1.1300 handle, marking a break-down below a short-term ascending trend-line will reinforce the bearish outlook and accelerate the slide back towards yearly lows, around the 1.1215 region. The downward momentum could further get extended, even below the 1.1200 handle, towards testing the next support near the 1.1160 area.

On the flip side, the 1.1345-50 region now seems to act as an immediate resistance, which if cleared might trigger a short-covering bounce but seems more likely to remain capped near another short-term descending trend-line resistance, currently near the 1.1400 round figure mark.