EUR/USD drops after 2-day rally, is it over?

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  • US Dollar up against majors on a low volatility session. 
  • EUR/USD corrects lower after 2-day rally, remains above the 20-day moving average. 

The EUR/USD pair printed a fresh low at 1.1186 and quickly pulled back to the previous range between 1.1200 and 1.1190. During the last hours it moved in a range of less than 15 pips, consolidating modest daily losses. 

Price action remains limited across financial markets following the European elections and amid a holiday in the US. Activity will likely return to normal on Tuesday.  Among the top moves are Bund yields. The 10-year German bond yield dropped to -0.14%, the lowest since 2016.  

Although the EU elections saw shrinking support for established parties in many countries, the influence of Eurosceptic groups will remain limited with a vote share of 23% (from 20.6% previously). Losses for the Social Democrats and Conservatives – which lost their absolute majority for the first time since 1979 – were amply offset by gains for the Greens and Liberals, meaning that overall sentiment in Parliament will remain pro-EU”, explained analyst at Danske Bank. They expect financial markets to react positively to the EU election results (higher equities and yields). “But it is not a big market mover, as we see it. The next major events are the ECB and Fed June meetings”, they concluded. 

The Euro opened higher the week amid higher equity prices but then lost momentum and erased gains, weakened by a stronger US Dollar across the board, and also by lower German yields.

EUR/USD levels to watch

At the moment, EUR/USD trades at 1.1109, down 0.09% for the day, pulling after hitting earlier today at 1.1215, the highest level in more than a week. To the downside, support levels might be seen 1.1180, followed by 1.1150 and 1.1105/10 (May 23 low). On the upside, short-term resistance levels could be seen at 1.1200, 1.1215 (May 27 high) and 1.1235 (55-day moving average). 

Today’s slide appears like a correction of the 100-pips bounce from the May low it reached on Thursday. In order to gain strength the euro needs to rise above 1.1230. A downtrend line at 1.1300 will likely offer resistance if it extends the rally. On the flip side, a decline below 1.1150 could signal that the recovery is over. 

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