EUR/USD forecast: Remains vulnerable to test sub-1.10 level, Euro-zone PMIs in focus

• The recent Italian political developments continued to weigh on the shared currency.
• The USD regained traction amid rising US bond yields/not so dovish FOMC minutes.
• Traders now eye Euro-zone PMI prints for some impetus ahead of Powell on Friday.

The EUR/USD pair failed to capitalize on the previous session's modest uptick and came under some renewed selling pressure on Wednesday, albeit remained well within the weekly trading range. The latest political development in Italy - wherein Prime Minister Giuseppe Conte formally resigned on Monday - was seen as one of the key factors weighing on the sentiment surrounding the shared currency. This coupled with a modest US Dollar uptick - supported by a goodish pickup in the US Treasury bond yields - further collaborated to the pair's intraday downtick.

FOMC minutes favoured USD bulls

The greenback remained supported by the fact that minutes of the July FOMC meeting tempered expectations of aggressive rate cuts and revealed that most policymakers viewed the 25 bps rate cut as a mid-cycle adjustment rather than the start of a lengthy easing cycle. Several officials stressed the need for flexibility and were united in wanting to signal they were not on a preset path to more cuts. However, given that interest rate futures are pricing in a 100% probability of a rate cut at the Fed's September meeting, the minutes provided a minor lift to the greenback and kept exerting some pressure on the major.

Focus on Euro-zone PMIs/ Jackson Hole symposium

Meanwhile, the market reaction turned out to be rather muted ahead of the Fed Chair Jerome Powell's scheduled speech at Jackson Hole on Friday. Powell's comments will be closely scrutinized for fresh insight over the central bank's near-term monetary policy outlook, which might play a key role in determining the pair's next leg of a directional move. In the meantime, Thursday economic docket - highlighting the release of prelim Euro-zone manufacturing and services PMI - will influence the European currency and produce some short-term trading opportunities.

Short-term technical oulook

From a technical perspective, nothing seems to have changed much for the pair and the bias remains tilted in favour of bearish traders. A follow-through weakness below the 1.1065 region will reaffirm the negative outlook and set the stage for a move towards challenging the key 1.10 psychological mark with some intermediate support near yearly lows - around the 1.1025 zone. The pair could further slide towards testing a support marked by a descending trend-line extending from December 2018 - currently near the 1.0970 region.
 
On the flip side, the 1.1100 handle, closely followed by weekly tops near the 1.1115 region now seemed to have emerged as immediate strong resistance levels, above which a bout of short-covering might assist the pair to recover further towards the recent trading range support breakpoint - around the 1.1175-80 region. Any subsequent up-move might continue to confront stiff resistance and remain capped near 100-day SMA - levels just above the 1.1200 round figure mark.