EUR/USD sticks to modest gains above 1.19 as DXY remains in the red

After testing the 1.19 handle during the second half of the NA session, the EUR/USD found support there and edged higher and is now looking to close the day with gains as it's trading near the 1.1920 mark, adding 0.2% on the day.

Although the US Dollar Index remained under pressure amid some dovish comments from FOMC members and disappointing data, the shared currency had a difficult time recording significant earnings against the greenback as investors are reluctant to take large euro positions ahead of the critical ECB meeting on Thursday. Tomorrow's data from the euro area, retail sales from Italy and factory orders from Germany, are unlikely to cause any major market reactions. Later in the day, Markit will release the service sector PMI data from the U.S., which is expected to ease to 56.8 in August from 56.9 in July.

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“With the stronger euro, the ECB is likely to be more cautious with its tapering communication. In fact, there are two options: either announce the details of a very dovish tapering starting January 2018, this week, hoping that full clarity restores calm, or strike a cautious balance between giving the first hint at upcoming tapering and adopting dovish tones,” analysts at ING argued in a recent report.

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Moreover, the EUR/GBP pair's sharp drop on Tuesday seems to be another factor that dented the demand for euro. In fact, the Euro Index is now at 94.70, losing 0.1% on the day.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "...the 4 hours chart shows that the price keeps hovering around a horizontal 20 SMA, while technical indicators remain around their mid-lines, with no clear directional strength. Below 1.1860/70, the risk should turn towards the downside, exposing first the 1.1822 low set last week, en route to a stronger static support in the 1.1780/90 region, whilst renewed buying interest above 1.1920, could see the pair attempting a test of the 1.2000 price zone."

According to the analyst, supports for the pair could be seen at 1.1860, 1.1820 and 1.1785 while resistances are located at 1.1920, 1.1965 and 1.2000.