EUR/USD forecast: Vulnerable near multi-week lows, Euro-zone PMIs eyed ahead of ECB on Thursday

• Diminishing odds of an aggressive Fed policy easing lend extra legs to the recent USD rally.
• Dovish ECB expectations weighed on the shared currency and collaborated to the slump.
• Traders now eye flash Euro-zone PMIs for some impetus ahead of ECB on Thursday.

The EUR/USD pair came under some intense selling pressure on Tuesday and tumbled to levels just below mid-1.1100s, the lowest since May 31. Against the backdrop of rising of further monetary easing by the ECB, a strong follow-through demand for the US Dollar exerted some heavy downward pressure during the second half of Tuesday's trading action. As investors continued scaling back expectations for a 50 bps interest rate cut by the Fed, a modest pickup in the US Treasury bond yields helped the USD to extend its recent rally and reach a fresh five-week high, beyond mid-97.00s.

The bearish pressure remained unabated following the disappointing releases of second-tier US economic data, showing that Existing Home Sales decreased by 1.7% in June and Richmond Fed Manufacturing Index unexpectedly dropped to -12 in July as against an expected bounce to 5. On the other hand, the EU Consumer Confidence rebounded to -6.6 in July from -7.2 previous, albeit failed to impress the bulls or stall the pair's sharp intraday downfall. 

The pair continued grinding lower through the Asian session on Wednesday and refreshed multi-week lows as market participants now look forward to the flash Euro-zone PMI prints for July. The preliminary German PMI is expected to show that the manufacturing activity contracted for the seventh straight month during the reported period, which the broader Euro-zone manufacturing PMI is also forecasted to remain in contraction territory - below 50 for the sixth consecutive month in July.

Later during the early North-American session, the US economic docket - featuring the releases of flash manufacturing and services PMIs, along with New Home Sales data for June, might further collaborate towards producing some short-term trading opportunities. However, barring the initial movement, the reaction is likely to be limited and overshadowed by some repositioning trade ahead of the highly anticipated ECB monetary policy decision, scheduled to be announced on Thursday.

From a technical perspective, the overnight break below the 1.1200-1.1190 horizontal support might have already confirmed a bearish breakdown, setting the stage for a further near-term depreciating move back towards challenging yearly lows, just ahead of the 1.1100 mark.  A follow-through selling below the mentioned handle now seems to turn the pair vulnerable to accelerate the slide further towards 1.1070 intermediate support before eventually dropping to test the 1.1000 round figure mark. 

On the flip side, any meaningful recovery now seems to confront some fresh supply near the 1.1190-1.1200 horizontal support break-point, above which a fresh bout of short-covering could assist the pair to aim back towards testing the 1.1270-80 heavy supply zone – nearing 100-day EMA.