Against the backdrop of trade tensions between the US and its key allies, the US Dollar regained positive traction at the start of an eventful week and was further supported by upbeat US ISM manufacturing PMI for June. Meanwhile, Germany’s leadership spat, wherein Chancellor Angela Merkel scrambled to hold her coalition government together, undermined the shared currency and prompted some fresh selling around the EUR/USD pair.
The pair slipped back below the 1.1600 handle but witnessed a late recovery on the back of a media report that an agreement on migration issues has been reached. Despite fading political uncertainty, the rebound lacked any strong follow-through and remained capped below mid-1.1600s.
The pair extended its subdued trading action through the Asian session on Tuesday and in absence of any major market moving economic releases, seems more likely to remain confined within a narrow trading range. However, this week's other heavyweight US economic data, including the keenly watched NFP will now play an important role in determining the pair's next leg of directional move.
The technical picture presents a neutral outlook but a descending triangular formation on daily charts suggests an extension of the bearish slide. Moreover, the fact that the pair remains well below its short/medium/long-term moving averages further reinforce the negative outlook and would be reaffirmed on a decisive break through the 1.1600 handle.
Below the mentioned support, the pair is likely to accelerate the fall back towards retesting YTD lows support near the 1.1510-1.1500 region. A follow-through selling would mark a fresh bearish breakdown and pave the way for an extension of the downward trajectory.
On the flip side, any meaningful up-move is likely to confront immediate hurdle near the 1.1690-1.1700 region and is followed by the triangle resistance, currently near the 1.1720 area. A convincing move beyond the mentioned barriers might negate the bearish formation and trigger a near-term short-covering bounce, back towards the 1.1800 handle.
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