EUR/USD Outlook: Bullish potential intact, flash Eurozone/US PMIs eyed for fresh impetus

The EUR/USD pair stalls the previous day's retracement slide from the 1.0930 region, or its highest level since February 03 and oscillates in a narrow trading band during the Asian session on Friday. The shared currency continues to draw support from the recent hawkish comments from European Central Bank (ECB) officials, insisting on the need for continuing rate hikes going forward. In fact, the ECB policymaker Klaas Knot said on Thursday that the central bank will need to raise the policy rate again in May. The US Dollar (USD), on the other hand, is seen struggling to capitalize on the overnight goodish rebound from a seven-week low touched in the aftermath of the Federal Reserve's hints of a pause to interest rate hikes.

It is worth recalling that the US central bank raised interest rates by 25 bps on Wednesday, as was widely anticipated, though sounded cautious on the outlook in the wake of the recent turmoil in the banking sector. In fact, banking stocks have been battered in the last two weeks following the sudden collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - and the emergency sale of the troubled Swiss bank, Credit Suisse to its rival UBS. Furthermore, the Fed lowered its median forecast for real GDP growth projections for 2023 and 2024. This, along with the recent sharp decline in the US Treasury bond yields and a generally positive risk tone, undermines the buck and lends some support to the EUR/USD pair.

The aforementioned factors, to a larger extent, overshadows Thursday's better-than-expected release of the US Initial Jobless Claims, which fell to a three-week low level of 191K and pointed to tight labor market conditions. Market participants now look forward to the release of the flash version of PMI prints from the Eurozone and the US. Apart from this, traders will take cues from the US bond yields and the broader risk sentiment, which should influence the USD price dynamics and provide a fresh impetus to the EUR/USD pair. Nevertheless, spot prices remain on track to register strong weekly gains and prolong the recent rally from the vicinity of the 1.0500 psychological mark, or over a two-month low touched earlier this March.

Technical Outlook

From a technical perspective, this week's sustained breakthrough the 50-day Simple Moving Average and a subsequent move up favours bullish traders. The constructive setup is reinforced by the fact that oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone. That said, it will still be prudent to wait for some follow-through buying beyond the 1.0850 region before positioning for a further appreciating move. The EUR/USD pair might then aim back to reclaim the 1.0900 mark and retest the overnight swing high, around the 1.0930 region. The momentum could get extended further towards the 1.1000 psychological mark en route to the 10-month peak, around the 1.1030-1.1035 zone set on February 02.

On the flip side, any further corrective pullback is more likely to find decent support just below the 1.0800 mark. Sustained weakness below, however, might prompt some technical selling and drag the EUR/USD pair back towards the 50-day SMA resistance breakpoint, currently around the 1.0730-1.0725 zone. This is followed by the 1.0700 mark and the 1.0680-1.0675 support, below which spot prices could slide to the 100-day SMA support, around the 1.0600 round figure. The latter should act as a strong base, which if broken decisively will negate the positive outlook and shift the near-term bias back in favour of bearish traders.