EUR/USD Forecast: Can euro break out of range before ECB meeting?

EUR/USD has been struggling to determine its next short-term direction.
Disappointing sentiment data from Germany limit EUR/USD’s upside.
Dollar stays soft to begin the week amid improving market mood.
EUR/USD has kicked off the new week on a firm footing and trades near the ceiling of its weekly range, supported by the improving market mood. However, euro bulls could hesitate to commit to a steady advance ahead of the all-important European Central Bank (ECB) policy meeting later in the week. Hence, the pair is likely to fluctuate between key technical levels in the near term.

In the absence of significant fundamental drivers, the dollar’s market valuation remains the primary driver of EUR/USD’s movements on Monday.

Reflecting the ongoing USD weakness, the US Dollar Index, which closed the second straight week in the negative territory on Friday, stays around 93.50. Nevertheless, the 10-year US Treasury bond yield is up more than 1% following Friday’s sharp decline, allowing the greenback to show some resilience against its rivals. In case the 10-year T-bond yield breaks above 1.7%, the USD could regather its strength and force EUR/USD to reverse its direction.The Chicago Fed’s National Activity Index and the Dallas Fed’s Manufacturing Survey will be featured in the US economic docket.

In the meantime, the IFO Survey from Germany revealed on Monday that the business sentiment in Europe’s biggest economy continued to deteriorate in October. According to the report, ongoing supply chain issues are causing trouble for companies and decreasing production capacities.

German IFO Business Climate worsens to 97.7 in Oct vs. 97.9 expected.

EUR/USD technical analysisOn the four-hour chart, the Relative Strength Index (RSI) indicator is holding above 60, suggesting that sellers show no interest in EUR/USD at the start of the week.

However, the pair has failed to break above the 1.1670 (Fibonacci 38.2% retracement September downtrend, 200-period SMA) resistance area twice last week and additional gains could be hard to come by unless the pair makes a daily close above that level. In case that happens, 1.1700 (psychological level) and 1.1720 (Fibonacci 50% retracement) could be seen as the next targets on the upside.

On the flip side, 1.1620 (Fibonacci 23.6% retracement, the lower limit of weekly trading range) is the initial support before 1.1600 (psychological level, 100-period SMA) and 1.1560 (static level).