EUR/USD Analysis: Bulls remain at the mercy of USD price dynamics

The EUR/USD pair recorded gains for the second straight session on Tuesday and recovered further from two-month lows, set last week. Bulls shrugged off the previous day's dovish comments by the ECB President, Christine Lagarde, saying that policymakers remain deeply concerned about the high exchange rate and its impact on inflation. A further improvement in the global risk sentiment undermined the US dollar's safe-haven status, which, in turn, was seen as a key factor driving the pair higher.

The shared currency seemed rather unaffected by worries for the Eurozone's economic performance amid the second wave of coronavirus infections and weaker German consumer inflation figures. According to the preliminary estimates, the headline German CPI is seen contracting 0.2% MoM in September. Adding to this, the Harmonized Index (HICP), slumped to -0.4% YoY in September from -0.1% and missed market expectations pointing to a reading of -0.1%. Separately, the Eurozone Economic Sentiment Indicator improved to 91.1 in September from 87.5 in the previous month.

From the US, the Goods Trade Balance data showed that deficit widened to $82.9 billion in August from the previous month's $-80.1 billion. The disappointment, to a larger extent, was negated by upbeat Conference Board's Consumer Confidence Index, which jumped to 101.8 in September from 86.3 and hence, did little to provide any meaningful impetus. Nevertheless, the pair settled near the top end of its daily trading range, just below mid-1.1700s, and climbed to over one-week tops during the Asian session on Wednesday.

Meanwhile, the first debate between Republican President Donald Trump and Democratic rival Joe Biden also failed to move the markets. However, Trump's latest comments that the election result might not be known for months added to the uncertainty and triggered a fresh wave of the global risk aversion trade. This was evident from a turnaround in the equity markets, which extended some support to the greenback and kept a lid on any further gains for the major.

Market participants now look forward to a slew of second-tier economic releases from the Eurozone. This, along with the ECB President Christine Lagarde's speech might influence the common currency. The US economic docket highlights the release of the final GDP print, Chicago PMI and Pending Home Sales data. This, along with speeches by influential FOMC members will also be looked upon for some short-term trading opportunities.

Technical outlook

From a technical perspective, the pair now seems to have found acceptance above the 38.2% Fibonacci level of the 1.1168-1.2011 positive move. However, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.1760-65 strong horizontal support breakpoint. That said, some follow-through buying beyond 100-day SMA, currently near the 1.1790 area – nearing the 23.6% Fibo. level – will negate any near-term bearish bias.

On the flip side, immediate support is now pegged near the 1.1700 mark ahead of the 1.1660 horizontal zone. A convincing breakthrough will negate prospects for any further positive move and turn the pair vulnerable to slide back to the recent swing lows, around the 1.1615-10 region. The latter coincides with the 50% Fibo. level, which if broken decisively will set the stage for a move towards challenging the key 1.1500 psychological mark. The latter marks an important confluence region – comprising of the 61.8% Fibo. level and 100-day SMA – and should now act as a strong base for the major.