EUR/USD reverses half the post-French election rally, what next?

The EUR/USD pair has almost retraced half the post-French election optimism inspired rally, and now looks to close the bullish opening gap amid prevalent risk-off market profile.

The spot erodes 100-pips as a risk-on rally in the treasury yields somewhat weighs down on the funding currency status of the Euro. Moreover, a bout of profit-taking cannot be avoided after the major witnessed an extensive knee-jerk 200-pips rally earlier on the day.

The Euro jumped to the highest levels since early November 2016 against its American peer, after the outcome of the first round of the French presidential election showed Macron and Le Pen heading into the second round, as widely expected. 97% of the vote in: Macron 23.87%, Le Pen 21.43%, Abstention 21.75%

The outcome boosted the credibility of the Opinion polls and therefore, lifted the overall risk sentiment across the financial markets. Markets also began pricing-in a Macron win in the round 2, as reflected by the polls. A Le Pen victory is a threat to the euro, as it may imply France’s exit from the EU.

Looking ahead, focus now remains on the official results that will be released mid-week on Wednesday, while Trump’s tax reform plans due to be announced this week will also remain the key highlight going forward. In the meantime, today’s German Ifo business climate survey and Fedspeaks will be eyed for fresh impetus on the spot.

EUR/USD Technical Levels

Technical resistances for the pair are aligned at 1.0900/20 (round number/ multi-month tops), 1.0940/50 (Classic R2/ psychological levels) and finally 1.1000 (key resistance). On the flip side, the spot finds next support at 1.0771 (5-DMA), a break below that level could open the door to 1.0731 (key support) and 1.0707/00 (10-DMA).