EUR/USD rebounds from 1.1290 but the upside remains limited under 1.1325

The EUR/USD pair dropped to test the daily low at 1.1289 and rebounded toward 1.1320. It continues to move sideways, slightly below the level it close on Friday, hovering around 1.1300, consolidating most of last week gains. 

The euro rose sharply against the US Dollar having the best weekly performance in months, supported by a change in the expectation of the Fed’s monetary policy that reduced the divergence with the European Central Bank.  “The EUR remains resilient despite press reports that some ECB policymakers would take a dim view of further appreciation. EURUSD is back below 1.1325, but 1.1265 should provide a solid backing. The key objective higher remains the 200-dma”, said TDS analysts. 

Equity prices in the US are higher today, supported by Trump’s announcement that tariffs on Mexico were "indefinitely suspended" that boosted Wall Street and the Mexican peso. Despite the gains in the DOW JONES (+0.65%) and the NASDAQ (+0.90%), commodity currencies are among the worst performers. The greenback is up modestly versus its main European rivals and the yen, supported by higher US yields. The 10-year climbed to 2.145%, the highest in almost a week. 

Despite the Mexico-US agreement, the tensions with China continue to weigh on market sentiment. Regarding the Euro, comments about prospects of the ECB favored the correction seen today in EUR/USD. It was reported that ECB officials are concern that inflation expectations are becoming deanchored.

Volatility is low on Monday, supporting the consolidation in EUR/USD. A break above 1.1325, could add momentum to the Euro for a test of last week highs near 1.1350. On the flip side, the correction is likely to extend to 1.1260 if its break under 1.1290. 

Levels to watch