The EUR/USD has rallied 1.5% since trading down to 1.1703 on March 31, as the move lower in Treasury yields and heavy short-covering in EUR/GBP have underpinned the single currency.
But the rally looks more like a correction and EUR/USD bears may see recent gains as a selling opportunity.
The gains over the past week have come despite more evidence the U.S. economy is recovering faster than the euro zone economy and the COVID-19 vaccine rollout in the U.S. is proceeding at a much faster pace. nL1N2LZ1F9nL1N2LZ17A Those factors have been making a strong case for shorting the EUR/USD for the past few weeks and the pace of the fall was starting to look overdone.
The recent fall in the 10-year U.S. Treasury yield from the March 20 high at 1.77% is the main catalyst behind the EUR/USD correction higher.
Bond traders have taken a selling break after being overly aggressive in pricing in the U.S. Federal Reserve having to tighten policy ahead of schedule due to rising inflation pressures nL1N2LZ21Z.
But the trend for higher U.S. yields remain in place, as U.S. economic growth will continue to be fuelled by the current dose of fiscal stimulus and the promise of more to come. nL1N2LT2MZnL1N2LT27G
The EUR/USD is close to key resistance at the 200-day moving average at 1.1885 and the 38.2 Fibonacci retracement of the 1.2243/1.17043 move at 1.1910.
Selling rallies with a tight stop above 1.1920 for an eventual test of 1.1600 is the favoured strategy.
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