EUR/USD: Merkel sees disappointing victory, Draghi’s testimony holds the key

The EUR/USD pair staged a solid comeback on 1.19 handle, reversing more-than half the German’s election outcome induced sell-off to 1.1898 levels, as attention turns towards the ECB Chief Draghi’s testimony and Fedspeaks due later on Monday.

EUR/USD: Focus shifts to German Ifo, Draghi

The main currency pair witnessed a bearish opening gap and dipped briefly below 1.19 handle, after markets reacted negatively to the German election outcome, reflecting a disappointing victory for Merkel’s Conservatives (CDU) Party, which is now set to form a coalition government.

Merkel failed to win with a majority, recording its weakest result since 1949, while the AfD Party’s rise posed a big challenge to Merkel’s CDU. More so, with a coalition government now, markets believe Merkel could be forced to rein in her plans to re-shape Europe together with France's Emmanuel Macron.

However, over the last hours, the spot managed to recover ground somewhat, but is now seen struggling to close in the bearish opening gap, as the USD bulls continue to keep a lid on the recovery, in the wake of the recent hawkish surprise from the Fed.

Meanwhile, the major also remains wary ahead of the ECB President Draghi’s testimony due later today on the economy and monetary developments before the European Parliament Economic and Monetary Affairs Committee, in Brussels. Also, of note for the Euro remains the German Ifo business surveys due on the cards in the European session ahead.

EUR/USD Technical Set-up  

Valeria Bednarik, Chief Analyst at FXStreet, noted: “The fact that the pair remains far above its 100 and 200 SMAs, keeps the long term risk towards the upside. Shorter term, and according to the 4 hours chart, the outlook is pretty much the same, as the price converges with its 20 and 100 SMAs, both lacking directional strength, and technical indicators heading nowhere right below their mid-lines. Support levels: 1.1900 1.1860 1.1820 Resistance levels: 1.1965 1.2000 1.2030.”