EUR/USD Forecast: Seems vulnerable near multi-month lows, FOMC minutes in focus

• A combination of factors prompted some fresh selling around EUR/USD on Tuesday.
• Disappointing Eurozone ZEW survey results weighed heavily on the shared currency.
• The risk-off mood drove haven flows towards the USD and added to the selling bias.
• The downside remains limited at traders turn cautious ahead of the FOMC minutes.

The EUR/USD pair failed to capitalize on Tuesday's modest gains to the 1.1900 neighbourhood and dived back closer to the three-month lows touched last week. The shared currency weakened across the board in reaction to disappointing economic data, which, along with a goodish pickup in the US dollar demand exerted some downward pressure on the major. The shared currency weakened across the board in reaction to disappointing ZEW survey results, which showed that investors sentiment in Germany – the Eurozone's biggest economy – fell sharply in July. The index tumbled to 63.3 for the current month from 79.8 previous. Adding to this, the gauge for the broader Eurozone dropped to 61.2 for the current month, missing 84.4 consensus estimates.

On the other hand, a fresh bout of risk aversion trade drove some haven flows towards the US dollar amid concerns about the spread of the highly contagious Delta variant of the coronavirus. This was seen as another factor that further contributed to the pair's intraday decline. The USD bulls seemed rather unaffected by the risk-off mood-led slump in the US Treasury bond yields and softer US ISM Services PMI. The gauge measuring business activity in the US services sector fell short of market expectations and fell to 60.1 in June. The disappointment, however, was largely offset by a slightly better-than-expected Prices Paid sub-component.

Apart from this, diminishing odds for an earlier than anticipated policy tightening by the Fed hold the USD bulls from placing aggressive bets. This, in turn, assisted the pair to hold its neck above the 1.1800 round-figure mark through the Asian session on Wednesday. Hence, the key focus will remain on the FOMC June meeting minutes. Investors will look for clues about the Fed's monetary policy outlook, which will play a key role in influencing the USD price dynamics in the near term and provide a fresh directional impetus to the major.

Short-term technical outlook

From a technical perspective, any subsequent decline below the 1.1800 mark is more likely to find decent support near a short-term ascending trend-line, currently around the 1.1775 region. Given that RSI (14) on the daily chart has just started drifting into the oversold territory, the mentioned area should act as a strong base for the major. A convincing break below will be seen as a fresh trigger for bearish traders and prompt some aggressive technical selling. The pair might then turn vulnerable to accelerate the slide further towards challenging YTD lows, around the 1.1700 mark touched in March.

On the flip side, immediate resistance is pegged near the 1.1860 horizontal zone, above which the pair is likely to make a fresh attempt to reclaim the 1.1900 mark. Some follow-through buying beyond the 1.1925-30 supply zone might prompt some short-covering move and allow bulls to aim back to reclaim the key 1.2000 psychological mark.