EUR/USD: Bulls rescued by the EUR/GBP rally, US GDP in focus

• UK GDP-led rally in EUR/GBP helps cap the losses in the Euro.
• Downbeat US Q1 GDP to help EUR/USD regain 1.22 handle?

The EUR/USD pair came under heavy selling pressure following a break of the key 1.2100 support, knocking-off the rates to the lowest levels in three months at 1.2065.

The sell-off in the spot was mainly driven by the resurgent USD buying across the board, as markets continue to favor the US currency amid widening US-German yield differential, in the wake of divergent monetary policy outlooks between the Fed and ECB.

Despite Draghi’s surprisingly optimistic comments on the Euro area economic outlook, the ECB is seen unlikely to hike the interest rates before 2019 while the Fed remains on track to lift the rates by 25bps in the June FOMC meeting.

However, the Euro managed to find some support from the downbeat UK Q1 prelim report induced rally in the EUR/GBP cross, after Cable was heavily battered on dwindling May BOE rate hike expectations.

More so, a flat reading for the Eurozone April consumer confidence gauge also offered a helping hand to the common currency, helping push EUR/USD back towards the 1.22 handle.

All eyes now remain on the US Q1 advance GDP release for the next leg higher in the US dollar. Markets are expected the US GDP growth decelerate sharply in the first quarter of 2018.

EUR/USD levels to watch

FXStreet’s Analyst, Yohay Elam explains: “Support awaits at the $1.2000 level which is not only a round number but also where the 200-day Simple Moving Average meets the chart, making it a key level. Further below, $1.1920 was a trough early in the year and is the next level to watch. On the topside, the 2017 peak of $1.2090 serves as resistance. It is followed by the March 1st low of $1.2155 and $1.2210 follows.”