EUR/USD Outlook: Bulls remain at the mercy of USD price dynamics, eyes Lagarde’s speech

• EUR/USD posts gains on Wednesday and snaps a two-day losing streak amid fresh USD selling.
• Bets for less aggressive Fed rate hikes and falling US bond yields weighed heavily on the buck.
• Russian President Putin’s threat of using nuclear weapons caps gains for the shared currency.
• Traders now look to ECB President Lagarde’s scheduled speech for some meaningful impetus.

The EUR/USD pair gained some positive traction on Wednesday and stalled this week's retracement slide from the vicinity of the 1.0600 mark or its highest level since late June. The intraday move was sponsored by the emergence of fresh US Dollar selling, though it ran out of steam near the mid-1.0500s. As investors seek clarity on the Federal Reserve's rate-hike path, a sharp fall in the US Treasury bond yields turned out to be a key factor weighing on the greenback. The yield on the benchmark 10-year US government bond fell to the lowest since September amid expectations that the Fed will slow the pace of its policy tightening. The current market pricing indicates a greater chance of a relatively smaller 50 bps rate hike at the next FOMC policy meeting on December 13-14.

The incoming positive US macro data suggested that the economy remained resilient despite rising borrowing costs. This has been fueling speculations that the Fed might lift rates more than recently projected. This, along with growing worries about a deeper global economic downturn, helps limit the downside for the safe-haven greenback. Furthermore, comments by Russian President Vladimir Putin, saying that the risk of a nuclear war was growing, acted as a headwind for the shared currency. Putin, however, added that Russia would not recklessly threaten to use such weapons. Nevertheless, the EUR/USD pair finally settled with modest gains, snapping a two-day losing streak, and held steady around the 1.0500 psychological mark through the Asian session on Thursday.

Moving ahead, no major market-moving economic data is due for release from the Eurozone. That said, the European Central Bank (ECB) President Christine Lagarde's speech might provide some impetus. Investors will look for clues about the likely policy action at the December meeting amid diminishing odds for more aggressive rate hikes, which, in turn, will drive the common currency. Meanwhile, the US economic docket features the release of the usual Weekly Initial Jobless Claims. This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and contribute to producing short-term trading opportunities around the EUR/USD pair.

Technical Outlook

From a technical perspective, the recent breakout through the important 200-day SMA was a fresh trigger for bullish traders. Furthermore, the overnight bounce from the 1.0440-1.0430 resistance breakpoint validates the constructive setup. That said, it will be prudent to wait for some follow-through buying beyond the 1.0550 area before positioning for any further appreciating move. The EUR/USD pair might then make a fresh attempt to conquer the 1.0600 round figure. The following relevant hurdle is pegged near the 1.0630-1.0635 region, above which spot prices could accelerate the momentum towards the 1.0700 mark.

On the flip side, the 1.0500 level now provides immediate support ahead of the 1.0440-1.0430 region. Any further pullback towards the 1.0400 mark could be seen as a buying opportunity and remain limited near the 1.0375 region, or the 200 DMA. The latter should act as a strong base for the EUR/USD pair, which, if broken decisively, might prompt aggressive technical selling. Spot prices could then turn vulnerable to testing the 1.0300 mark before eventually dropping to the 1.0240-1.0220 support zone.