EUR/USD Forecast: The highly anticipated ECB decision eyed for a fresh directional impetus

The EUR/USD managed to regain some positive traction on Wednesday and recovered a part of the previous session's sharp pullback amid some renewed US dollar selling bias. Scepticism over the US President Donald Trump's proposed fiscal stimulus triggered yet another brutal selloff across the global equity markets and revived demand for traditional safe-haven assets. The anti-risk flow was evident from a fresh leg down in the US Treasury bond yields, which undermined the USD demand and eventually turned out to be one of the key factors that provided some intraday lift to the major.

The pair, however, failed to capitalize on the intraday positive momentum and retreated over 100 pips from the vicinity of 1.1370 region. The shared currency was weighed down by concerns that the Eurozone could face a recession in the near-term amid Italy’s lockdown to prevent the virus outbreak and fueled expectations. Market worries intensified further after the World Health Organization declared the novel coronavirus a global pandemic. Adding to this, Trump suspended all travel from Europe for 30 days in order to fight the coronavirus. The latest developments fueled speculations for some aggressive moves by the European Central Bank (ECB) when it meets later this Thursday.

Market expectations were reinforced by the ECB President Christine Lagarde's comments that the global economy could see a coronavirus-induced recession on a scale not seen since 2008 and Europe would see as scenarios that would remind us of the Great Financial Crisis. Given that rates are already at a record low level of -0.5%, the market remains divided over prospects of any further cuts as it could hurt bank margins and possibly squeeze lending. Hence, Thursday's announcement, which will be followed by the post-meeting press conference, has the potential to infuse a fresh bout of volatility across the euro pairs.

Short-term technical outlook

From a technical perspective, nothing seems to have changed much for the pair and the near-term set-up still seems tilted in favour of bullish traders. Hence, it will be prudent to wait for some strong follow-through selling before confirming that the pair might have already topped out in the near-term and positioning for any further near-term depreciating move.

In the meantime, immediate support is pegged near the 1.1275 region, which if broken, might prompt some technical selling and accelerate the slide further towards the 1.1200 round-figure mark. Some follow-through selling has the potential to drag the pair back towards a one-year-old descending trend-channel resistance breakpoint, now turned support near the 1.1170-65 region, which should act as a strong near-term base.

On the flip side, the 1.1360-70 region now seems to have emerged as an immediate resistance, which is closely followed by the 1.1400 round-figure mark. A sustained move back above the mentioned handle might negate any near-term negative bias and set the stage for a move back towards the key 1.1500 psychological mark.