EUR/USD Outlook: Break below 1.1700 mark has set the stage for further weakness

• A broad-based USD strength dragged EUR/USD to the lowest level since November 2020.
• FOMC minutes indicated that tapering could start later this year and boosted the USD.
• COVID-19 jitters, the risk-off mood further acted as a tailwind for the safe-haven buck.

The EUR/USD pair faded an intraday bullish spike to the 1.1740-45 area and finally settled nearly unchanged on Wednesday. The retracement slide extended through the Asian session on Thursday and dragged the pair to the lowest level since November 2020 during the Asian session. The downward momentum was exclusively sponsored by a broad-based US dollar strength, bolstered by the possibility that the Fed will begin tapering its asset purchases later this year. The minutes of the July 27-28 FOMC meeting revealed policymakers' assessment that progress was made towards the maximum-employment and price-stability goals.

The minutes, however, showed that several Fed officials thought that a move to start tapering asset purchases should start next year. Nevertheless, market participants seemed convinced that the Fed is now comfortable to roll back the crisis-era stimulus. This comes on the back of growing market worries that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery. Apart from this, political tensions in Afghanistan further weighed on investors' sentiment. This, in turn, was seen as another factor that acted as a tailwind for the safe-haven USD and continued exerting pressure on the major.

Given that Fed officials have been signalling towards normalizing monetary policy, the USD seems poised to prolong its ongoing positive move to nine-month tops. This, in turn, suggests that the path of least resistance for the pair remains to the downside. Traders now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. The data might influence the USD and provide some impetus to the pair later during the early North American session.

Short-term technical outlook

From a technical perspective, sustained weakness below the 1.1700 mark validated the recent bearish break below a short-term ascending trend-line and supports prospects for further weakness. The negative outlook is reinforced by the fact that technical indicators on the daily chart are holding deep in the bearish territory and are still far from being in the oversold zone. Hence, a subsequent fall towards November 2020 swing lows, around the 1.1600 round-figure mark, remains a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and set the stage for a further decline towards the key 1.1500 psychological mark.

On the flip side, attempted recovery moves might now confront resistance near the 1.1700 mark. Any further move up might be seen as an opportunity for bearish traders and remain capped near the overnight swing highs, around the 1.1740-45 region. A sustained strength beyond might trigger a short-covering move and allow bulls to aim back to reclaim the 1.1800 mark. This will now act as a key pivotal point for bullish traders, which if cleared decisively will negate the near-term negative bias.