EUR/USD Outlook: Path of least resistance is down, Eurozone/US PMIs eyed

• EUR/USD gained some positive traction on Thursday, albeit struggled to capitalize on the move.
• The ECB’s dovish tilt acted as a headwind for the shared currency and capped gains for the pair.
• The emergence of some fresh USD buying dragged the major back closer to multi-month lows.
• Investors now look forward to the flash Eurozone/US PMI prints from some meaningful impetus.

The EUR/USD pair had good two-way price moves on Thursday and was influenced by a combination of diverging forces. The US dollar remained on the backfoot through the first half of the trading action amid a generally stable market sentiment and extended some support to the major. The shared currency, on the other hand, firmed a bit after the European Central Bank announced its monetary policy decision, though failed to capitalize on the move.

As was widely expected, the ECB left its benchmark rates unchanged and reassured that the €1850 PEPP will continue until at least the end of March 2022. The central bank also revised its forward guidance and signalled that it is likely to maintain the expansionary monetary policy for a very long time. The ECB's shift towards more dovishness acted as a headwind for the euro and kept a lid on the pair's intraday positive move to one-week tops.

On the economic data front, the US Initial Jobless Claims unexpected increased to 419K for the week ended July 17 from the previous week's upwardly revised reading of 368K. The disappointment, however, was offset by concerns that the spread of the highly contagious Delta variant of the coronavirus could derail the global economic recovery. This, in turn, helped revived demand for the safe-haven USD and prompted some fresh selling around the major.

The pair finally settled near the lower end of its daily trading range and remained on the defensive through the Asian session on Friday. The pair was last seen hovering just a few pips above multi-month lows as market participants now look forward to the release of the flash version of PMI prints from the Eurozone and the US for a fresh impetus. Apart from this, the broader market risk sentiment will influence the USD and produce some trading opportunities around the major.

Short-term technical outlook

From a technical perspective, nothing seems to have changed for the pair and the near-term bias remains tilted firmly in favour of bearish traders. That said, it will still be prudent to wait for a sustained break below a short-term ascending trend-line – extending from September 2020 swing lows – before positioning for any further decline. The mentioned support is pegged near mid-1.1700s, below which the pair is likely to accelerate the fall towards YTD lows, around the 1.1700 mark touched in March. Some follow-through selling should pave the way for a slide towards the 1.1610-1.1600 horizontal support.

On the flip side, the 1.1800 mark now seems to act as an immediate strong resistance ahead of the overnight swing highs, around the 1.1830 area. This is followed by the 1.1875-80 supply zone and monthly tops, just ahead of the 1.1900 mark. A sustained strength beyond might prompt some short-covering move and allow the pair to aim back to reclaim the key 1.2000 psychological mark. The latter coincides with the very important 200-day SMA, which if cleared decisively will shift the near-term bias in favour of bullish traders.