EUR/USD Forecast: Bulls need to wait for sustained move beyond 1.2200, FOMC in focus

• EUR/USD witnessed a solid intraday rebound from the vicinity of 1.2100 mark on Tuesday.
• A turnaround in the risk sentiment undermined the safe-haven USD and remained supportive.
• Bulls seemed reluctant to place aggressive bets ahead of the FOMC decision on Wednesday.

The EUR/USD pair managed to find decent support ahead of the 1.2100 mark and staged a goodish bounce on Tuesday amid the emergence of some fresh US dollar selling. The risk sentiment witnessed an intraday turnaround amid hopes for a strong global economic recovery, which, in turn, undermined the safe-haven greenback. The optimism got an additional boost after the International Monetary Fund (IMF) upgraded its forecast for 2021 global economic growth to 5.5% from 5.2%. The IMF, however, warned that the second wave of infections and new variants of COVID-19 pose risk for the outlook.

The pair rallied around 70 pips from daily swing lows, albeit struggled to capitalize on the move and remained below the 1.2200 mark. Doubts about the size and time of the US stimulus package turned out to be a key factor that kept a lid on any runaway rally for the major. Republicans raised objections on the expensive price tag and pushed back on the idea of passing a $1.9 trillion stimulus plan proposed by the US President Joe Biden. Democratic Majority Leader Chuck Schumer further raised doubts over the timing and said that a comprehensive deal could be four to six weeks away.

On the economic data front, the Conference Board's US Consumer Confidence Index improved from 87.1 to 89.3 in January. Apart from this, a cautious mood around the equity markets extended some support to the USD and collaborated towards capping the upside for the pair. Investors also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the latest FOMC monetary policy decision later this Wednesday. Ahead of the key event risk, the pair was seen trading just above mid-1.2100s during the Asian session and remains at the mercy of the USD price dynamics.

There isn't any major market-moving Eurozone economic data due for release on Wednesday. Meanwhile, the US economic docket highlights the release of Durable Goods Orders data and will be looked upon for some trading impetus, though is more likely to be overshadowed by the pre-Fed repositioning trade. The Fed is widely expected to maintain status-quo and hence, the focus will be on the accompanying policy statement. This, along with the Fed Chair Jerome Powell's comments, will be scrutinized for clues about the central bank’s plan to start tapering the asset purchases later this year.

Short-term technical outlook

From a technical perspective, nothing seems to have changed much for the pair and bulls might still need to wait for a sustained strength beyond the 1.2200 mark before placing fresh bets. The mentioned level is closely followed by the 1.2220-25 supply zone, which if cleared decisively should push the pair to the 1.2270-75 resistance zone. The momentum could further get extended and assist the pair to reclaim the 1.2300 mark before bulls eventually aim to retest multi-year tops, around mid-1.2300s.

On the flip side, the overnight swing lows, around the 1.2110-1.2100 area, now seems to have emerged as immediate support. Some follow-through weakness, leading to a subsequent fall below the 1.2080-75 horizontal support might turn the pair vulnerable. This, in turn, will set the stage for a slide towards challenging the key 1.2000 psychological mark en-route the 1.1965-60 resistance breakpoint, now turned support.