EUR/USD Outlook: Remains vulnerable to slide further amid fading hopes of global recovery

• EUR/USD remained depressed and dropped to fresh two-month lows amid sustained USD buying.
• Renewed coronavirus jitters, the risk-off mood continued benefitting the safe-haven greenback.
• Worries about an economic slowdown in Europe undermined the euro and added to the selling bias.

The EUR/USD pair fell to fresh two-month lows, around mid-1.1600s amid sustained buying interest surrounding the US dollar. Renewed concern about the second wave of coronavirus infections overshadowed the recent optimism over the progress of a potential vaccine for the highly contagious disease.  and continued benefitting the greenback's status as the global reserve currency. The USD bulls largely shrugged off warnings by various Fed officials, stressing the need for more fiscal stimulus to sustain the recovery. The already stronger USD got an additional boost from a fresh leg down in the US equity markets.

On the other hand, the shared currency was weighed down by worries about the return of severe lockdown restrictions to contain a new rise in coronavirus cases and signs of an economic slowdown. According to the PMI data released on Wednesday, the economic recovery in the Eurozone took a hit in September. In fact, the Markit flash Eurozone Services PMI fell into contraction territory, to 47.6 for September, while the gauge for the manufacturing sector rose to 53.7 from 51.7 previous. The composite PMI barely held above the 50 mark, separating contraction from expansion. The euro faces an additional hurdle this Thursday with the release of German IFO Business Climate.

The US economic docket highlights the release of Initial Weekly Jobless Claims and New Home Sales data. This, along with a scheduled testimony by the Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin, will influence the USD price dynamics and produce some meaningful trading opportunities later during the North American session.

Short-term technical outlook

From a technical perspective, the pair this week’s broke through the 50-day SMA support for the first time since May. A subsequent fall below the 1.1700 mark and the 38.2% Fibonacci level of the 1.1683-1.2011 positive move might have already set the stage for a further near-term depreciating move. With technical indicators on the daily chart still far from being in the oversold territory, the pair seems vulnerable to slide further to test 50% Fibo. level, around the 1.1600 mark. Some follow-through selling should pave the way for an extension of the downward trajectory further towards the key 1.1500 psychological level. The latter marks a confluence region – comprising of the 61.8% Fibo. level and 100-day SMA –and should now act as a strong base for the major.

On the flip side, the 1.1700 mark (38.2% Fibo. level) now becomes immediate strong resistance. Any subsequent move up is more likely to confront a stiff resistance and remain capped near the 1.1760-65 horizontal support breakpoint. That said, a sustained strength beyond might trigger a short-covering move and lift the pair back above the 1.1800 mark. The momentum could further get extended towards the 1.1870-75 congestion zone, which if cleared decisively might negate any near-term bearish bias.