EUR/USD Outlook: Eyes Eurozone PMIs for some impetus after an uneventful ECB meeting

• The risk-on mood weighed on the safe-haven USD and assisted EUR/USD to regain traction.
• A slight hawkish tweak by the ECB on Thursday extended some additional support to euro.
• Investors now eye flash Eurozone PMI figures for some meaningful trading opportunities.

A weaker US dollar remained a key theme since the beginning of this week amid expectations that a massive stimulus package under Joe Biden's presidency would boost economic growth. The optimism was evident from the continuation of the rally in the global equity markets, which continued undermining the greenback's safe-haven status. This, in turn, assisted the EUR/USD pair to regain positive traction on Thursday and recover further from multi-week lows touched at the beginning of this week.

The shared currency maintained its bid tone and had a rather muted reaction to the latest European Central Bank (ECB) policy decision. As was widely expected, the ECB left its monetary policy settings unchanged and reiterated that the current accommodative stance remains appropriate. In the post-meeting press conference, the ECB President Christine Lagarde said that uncertainty around the pandemic stays unabated but risks to the economic outlook are less pronounced.

Meanwhile, Lagarde sounded slightly more hawkish on the Pandemic Emergency Purchase Program (PEPP). She said that the central bank might not need to exhaust the €1.85 trillion PEPP envelope if favourable financing conditions can be maintained. This, coupled with the fact that policymakers did not discuss much about the exchange rate, provided a modest lift to the shared currency. The policy statement revealed that members only pledged to continue to monitor closely developments in the FX market with regard to their possible implications for the medium-term inflation outlook.

On the other hand, the USD failed to gain any respite from encouraging US macro data, which showed that Initial Weekly Jobless Claims fell to 900K last week as against 910K expected. Separately, the Philly Fed Manufacturing Index also surpassed consensus estimates and jumped to 26.5 from 9.1 previous. Adding to this, the US housing market data – Building Permits and Housing Starts – also came in better than market expectations, albeit did little to impress the USD bulls. The pair finally settled near the top end of its daily trading range and held steady near weekly highs during the Asian session on Friday.

Market participants now look forward to the flash version of the Eurozone PMI prints for some meaningful trading impetus. Any positive surprise from the manufacturing sector activity – though seems unlikely due to prolonged coronavirus-induced lockdowns – might be negated by a contraction in the region's dominant services industry. Hence, any immediate market reaction is more likely to be short-lived, leaving the pair at the mercy of the USD price dynamics and the broader market risk sentiment.

Short-term technical outlook

From a technical perspective, any subsequent positive move is likely to confront some resistance near the 1.2200 round-figure mark. This is followed by resistance near the 1.2235-40 region. Some follow-through buying will negate any near-term negative bias and has the potential to push the pair back towards the 1.2300 round-figure mark.

On the flip side, the 1.2130 level now seems to protect the immediate downside ahead of the 1.2100 mark. Failure to defend the mentioned support levels might prompt some technical selling and turn the pair vulnerable to retest weekly lows, around the 1.2055-50 region. The downward trajectory could further get extended towards the key 1.2000 psychological mark, which should act as a key pivotal point for short-term traders.