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

  • 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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