EUR/USD Forecast: Scope for some more near-term short-covering bounce

The US Dollar continued scaling higher on Wednesday and spiked to a roughly 14-month high in the aftermath of stronger than expected monthly retail sales data. The US headline retail sales recorded a solid m/m growth of 0.5% in July, while core retail sales, which exclude automobiles, and control group sales, also bettered expectations and posted m/m rise of 0.5% and 0.6% respectively. Adding to this, an unexpected rise in the Empire State Manufacturing Index, coming in at 25.6 for July as against an expected dip to 20.0 remained supportive of the strong bid tone surrounding the buck.

The positive momentum, however, lost steam during the mid-US trading session, helping the EUR/USD pair to stage a goodish rebound from the 1.1300 round figure mark. The recovery move extended through the Asian session on Thursday and was further supported by news that the US and China are going to resume trade talks, which was seen prompting some additional USD profit-taking. There aren't any major market-moving economic releases due from the Euro-zone and the US economic docket also features the second-tier release of housing market data. Hence, the USD price dynamics might continue to act as an exclusive driver of the pair's momentum ahead of Friday's final Euro-zone CPI print.  

From a technical perspective, the ongoing recovery move from 13-month lows might still be categorized as corrective in nature amid near-term oversold conditions. However, the previous session's Dragonfly Doji candlestick signals a temporary end of the recent downtrend and thus, increases prospects for an additional near-term short-covering move. 

A subsequent up-move beyond the 1.1400 handle is likely to confront resistance near the 1.1435 area (weekly tops), above which bulls are likely to aim towards retesting an important horizontal support break-point, now turned strong barrier, near the key 1.1500 psychological mark. 

On the flip side, the 1.1345 level now seems to protect the immediate downside and is followed by the 1.1300 handle, which if broken might invalidate the near-term positive outlook and turn the pair vulnerable to resume with its prior, well-established bearish trajectory.