EUR/USD Analysis: Profit-taking kicks in as focus turns to Fed

• EUR/USD continued scaling higher on Monday amid a broad-based USD weakness.
• The continuous rise in COVID-19 cases fueled speculations of a dovish Fed outlook.
• Overbought conditions prompted some profit-taking ahead of the FOMC meeting.

The EUR/USD pair prolonged its recent strong bullish momentum and rallied to its highest level since September 2018 on the first day of a new trading week amid a broad-based US dollar weakness. Investors remain worried that the economic recovery in the US could be grinding to a halt in the wake of the resurgence in coronavirus cases. This, in turn, fueled speculations of more stimulus from the Fed and continued exerting some heavy pressure on the greenback. The bearish pressure surrounding the buck remained unabated following the release of mixed Durable Goods Orders data from the US. In fact, the headline orders rose 7.3% MoM in June, slightly better-than-expected. Excluding transportations, orders increased by 3.3% and ex-defense, orders were up 9.2%, both missing consensuses estimates.

On the other hand, the euro remained well supported by the latest optimism over a landmark agreement on the EU's €750 billion pandemic recovery fund – aimed at aiding the region’s worst-hit economies. The shared currency got an additional boost from Monday's release of German IFO Business Climate Index, which climbed to 90.5 in July as against the anticipated rise to 89.3 from 86.2 previous. Meanwhile, the Current Economic Assessment fell short of market expectations and arrived at 84.5, still marked improvement from last month's 81.3. The pair touched an intraday high level of 1.1782, though extremely overbought conditions kept a lid on any further gains, at least for the time being.

The pair finally settled around 30 pips off daily tops and witnessed some follow-through retracement during the Asian session on Tuesday. The pullback lacked any obvious fundamental catalyst and could be solely attributed to a modest USD rebound ahead of the two-day FOMC meeting, which gets underway later this Tuesday. In the meantime, traders might take cues from the US economic docket, highlighting the release of the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index. There isn't any major market-moving data due for release from the Eurozone and hence, the USD price dynamics might continue to act as an exclusive driver of the pair's momentum on Tuesday.

Short-term technical outlook

From a technical perspective, the pair is likely to find immediate support near the 1.1700 round-figure mark. Any subsequent profit-taking slide might still be seen as a buying opportunity near mid-1.1600s. That said, some follow-through selling has the potential to drag the pair further towards the 1.1600 mark. The mentioned level represents an important resistance breakpoint, marked by the 50% Fibonacci level of the 1.2555-1.0636 downfall, and should now act as a strong base for the pair.

On the flip side, the 1.1750 area might act as an immediate resistance, above which the pair is likely to reclaim the 1.1800 mark and test September 2018 swing highs resistance near the 1.1815-20 region. The latter coincides with the 61.8% Fibo. level and prove to be a tough nut to crack for bulls.