EUR/USD Price Forecast: Move beyond 1.1200 to set the stage for further gains amid bearish USD

• EUR/USD retests YTD peak after the initial negative reaction to dismal Eurozone PMIs this week.
• Dovish Fed expectations and a positive risk tone undermine the USD, lending support to the pair. 
• Traders now look to speeches by Fed officials for some impetus ahead of the US PCE on Friday.

The EUR/USD pair attracts some follow-through buying for the second successive day on Wednesday and climbs back closer to a 13-month high, around the 1.1200 mark touched in August. The US Dollar (USD) languishes near the YTD low touched last week amid rising bets for a more aggressive policy easing by the Federal Reserve (Fed) and turns out to be a key factor pushing the currency pair higher. In fact, the markets are now pricing in over a 75% chance that the US central bank will lower borrowing costs by another 50 basis points (bps) in November. 

Furthermore, Tuesday's disappointing US macro data and the prevalent risk-on environment seem to undermine the safe-haven Greenback. In fact, the Conference Board's (CB) Consumer Confidence Index deteriorated sharply in September and dropped to 98.7 from August's 105.6, while the Present Situation Index fell to 124.3 from the 134.6 previous. Adding to this, a survey from the Richmond Fed indicated that manufacturing activity remained sluggish and the composite manufacturing index declined to -21 in September from -19 in the previous month. 

Meanwhile, a slew of stimulus measures announced by China raised hopes for a recovery in the world's largest economy and boosted investors' appetite for riskier assets. This further contributes to driving flows away from the buck and offsets this week's dismal Eurozone data. The flash Eurozone PMIs released on Monday showed that business activity in the region contracted sharply in September. Moreover, the German IFO Business Climate Index dropped from 86.6 to 85.4 in September, while the Current Economic Assessment Index fell to 84.4. from 86.4 in August.

Traders, however, seem reluctant to place aggressive bullish bets around the EUR/USD pair as the focus remains glued to the upcoming speeches by influential FOMC members, including Fed Chair Jerome Powell on Thursday. Investors this week will also confront the release of the US Personal Consumption Expenditure (PCE) Price Index – the Fed's preferred inflation gauge – on Friday. This, in turn, will play a key role in driving market expectations about the Fed's rate-cut path, which should determine the next leg of a directional for the Greenback and the currency pair. 

Technical Outlook

From a technical perspective, a sustained strength beyond the 1.1200 mark will be seen as a fresh trigger for bullish traders and pave the way for additional gains. Given that oscillators on the daily chart are holding in positive territory and still away from being in the overbought zone, the EUR/USD pair might then accelerate the positive move towards the July 2023 swing high, around the 1.1275 region. This is followed by the 1.1300 mark, above which the momentum could extend further towards the 1.1335 region en route to the 1.1375 area and the 1.1400 round figure.

On the flip side, the 1.1160 region now seems to protect the immediate downside ahead of the 1.1135 region and the 1.1100 mark. This is closely followed by the weekly low, around the 1.1085-1.1080 zone, below which the EUR/USD pair could drop to the 50-day Simple Moving Average (SMA) support, currently near the 1.1020 zone. Some follow-through selling, leading to a subsequent break below the 1.1000 psychological mark, will suggest that spot prices have topped out and expose the next relevant support near the 1.0950-1.0940 region.

EUR/USD daily chart