EUR/USD Analysis: Flirts with descending channel resistance ahead of crucial ECB decision

• EUR/USD witnessed some selling on Wednesday and snapped a three-day winning streak.
• The resumption of the Russian gas supply assisted the pair to regain traction on Thursday.
• The focus remains glued to the crucial ECB policy decision, due to be announced later today.

The EUR/USD pair retreated from the 1.0275 area, or a two-week high touched earlier on Wednesday and ended the day in the red, snapping a three-day winning streak. The energy crisis grabbed the headlines after Russian President Vladimir Putin warned that supplies sent via the biggest pipeline to Europe could be reduced further and might even stop. The European Union told member states to cut gas usage by 15% until March as an emergency step, which, in turn, revived recession fears and weighed on the shared currency. This, along with a goodish US dollar rebound from its lowest level since July 6, exerted some downward pressure on the major.

Global equity markets, so far, have struggled to carry the positive mood witnessed during the first half of the currency week amid the worsening global economic outlook. Adding to this, elevated US Treasury bond yields assisted the safe-haven USD to stall its recent sharp pullback from a two-decade high. That said, receding bets for a more aggressive rate hike by the Federal Reserve in July kept a lid on any further gains for the buck. Furthermore, the resumption of Russian gas supply via the Nord Stream 1 pipeline offered some support to the common currency amid expectations the European Central Bank might deliver a jumbo 50-bps rate hike.

The combination of the aforementioned factors pushed the EUR/USD pair above the 1.0200 mark during the Asian session on Thursday. Traders, however, might refrain from positioning for big moves ahead of the crucial ECB policy decision. The central bank is to hike its benchmark interest rates for the first time since 2011. Markets, meanwhile, are split on whether the ECB policymakers would stick to the previously telegraphed 25 bps increase or raise rates by 50 bps to curb runaway inflation. The ECB is also expected to provide more details of its new anti-fragmentation tool aimed to shield highly indebted countries from surging borrowing rates.

Apart from this, ECB President Christine Lagarde's comments at the post-meeting press conference could infuse some volatility around the euro. This, along with the USD price dynamics, would help determine the next leg of a directional move for the EUR/USD pair. Meanwhile, the US economic docket – featuring the release of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless  Claims – might do little to provide any impetus to the USD or influence spot prices.

Technical outlook

From a technical perspective, the recent corrective bounce from the lowest level since December 2002 stalled near a resistance marked by the top boundary of a short-term descending channel extending from late May. The mentioned barrier, around the 1.0275-1.0280 region, is closely followed by the 1.0300 round-figure mark, which if cleared will be seen as a fresh trigger for bulls. The pair might then accelerate the momentum and aim to reclaim the 1.0400 round figure.

On the flip side, the 1.0150 area now seems to have emerged as immediate support and should help limit the immediate downside. Some follow-through selling will negate any near-term positive bias and make the pair vulnerable to breaking below the 1.0100 mark. The subsequent downfall will expose the parity market and the YTD low, around the 0.9950 region.