EUR/USD closes bullish opening gap, on its way to 1.2200?

• DXY regains footing in Asia.
• German politics, Higher T-yields weigh.
• German Buba report eyed ahead of ECB.

Heading into Europe, the EUR/USD pair is seen catching fresh selling-wave, as the bears look to the key support area located near 1.2215 region, a break below which will open floors for a test of the 1.22 handle.

The spot witnessed a bullish opening gap in Asia and tested 1.2275 levels, after the US dollar slumped across the board, in a reaction to the US government shutdown news. However, the USD bulls jumped back on the bids, in response to rising Treasury yields, as expectations of a March Fed lift-off continue to gather steam, the first potential rate hike under Powell’s Presidency.

EUR/USD eventually fell back towards the familiar region around 1.2220 levels, before entering a downside consolidative mode, as markets adopt a wait-and-see approach ahead of the key ECB policy decision due later this week.

The common currency also remains unfazed by the latest reports that the German Social Democrats (SPD) voted on Sunday to begin formal coalition talks with Chancellor Angela Merkel’s conservatives, as markets still remain wary whether this move will help to end the ongoing political stand-off.

 “Meanwhile, the price action now suggests that a near-term ceiling might already be in place near the 1.2300 handle. Hence, it would be prudent to wait for a clear break through the mentioned barrier before anticipating any further appreciating move in the near-term. In absence of any major market moving economic releases, the pair might extend its near-term consolidative phase ahead of this week's key event risk,” Haresh Menghani, Analyst at FXStreet, notes.

The EUR markets eagerly await the German Bundesbank’s monthly economic report for the much-needed trading impetus for today.

EUR/USD Technical Levels

The AceTrader Team writes: “Euro's decline on Friday from 1.2295 to 1.2215 (New York) suggests further 'choppy' trading below last Wednesday's fresh 3-year peak at 1.2323 would continue and despite initial higher open to 1.2274. As long as 1.2166 sup holds, another bounce towards 1.2295 is still envisaged but above is needed to bring re-test of 1.2323.”