FX.co ★ What will help euro extend rally amid overbought conditions? Short-term traders are set for a pullback in the euro and pound

The attractiveness of the dollar is falling along with the decline in Treasury yields. Aggressive actions by sellers of the American currency allowed other major world currencies to recoup and recover after a prolonged decline, especially since the euro and the pound have internal reasons for growth. Some analysts believe the support for the euro is likely driven by news that the eurozone has provided the population with an additional 100 million doses of COVID-19 vaccine from BioNTech and Pfizer. The vaccination campaign in Britain is going well, which gives hope for a faster economic recovery.

The UK released labor market data today. Recent reports indicate that the trend has shown overall resilience in recent months. However, statistics still provide too little food for thought, since the real state of affairs in the labor market is hidden and distorted in the context of anti-crisis programs.

So, the GBP/USD pair has gradually increased by almost 2.5% over the past seven trading sessions. The EUR/USD increased by 3% since the beginning of April. These popular couples have crossed important milestones today. This cannot be called a surprise, everything is in accordance with forecasts. Further, analysts are divided in their opinions.

Someone names the following targets. For the euro, it is 1.2100, and for the pound, it is the level of 1.4100, which is an important resistance. If the test does happen, it will definitely not be today. Be that as it may, the main factor stimulating the growth of major currencies is the falling dollar, but the trends, as you know, are changing. The world welcomes the US emerging from the crisis, and high consumption in this country is seen as a catalyst for global growth.

The implementation of Joe Biden's plans for infrastructure spending could correct the current sentiment. The approval of a $2.25 trillion spending package could trigger a sell-off, which in turn will drive up profitability and hence the dollar. Biden also expects to increase corporate taxes, which Wall Street strongly dislikes. Stopping the current rally will turn into a new wave of demand for the greenback. In this regard, the opinions of analysts on the other side are shifting towards a gradual downward rollback of the euro and pound.

The pound sterling looks overbought. The GBP/USD pair reaching the 1.4000 mark gave rise to the idea among short-term traders to put on a pullback from local extremes.

If the pound bulls manage to hold on to 1.4000, then they could very quickly reach the February highs around the 1.4240 mark. Further, a direct road to the round level 1.5000 will open. It is worth noting that this value is also the highest ever since the referendum on Britain's exit from the EU.

To make sure that the bullish sentiment on Forex in GBP/USD really strengthens, it is necessary to wait for the breakdown of the strong resistance level of 1.4006. If this does not happen, the quotes will move within the price range of 1.3980-1.4006.

As for the euro, short-term speculators consider the current surge in the single currency only as a correction from the decline from January to March. If you look at the situation more broadly, you can see another essence of the picture. The EUR/USD pair showed a solid rise on Monday from the 50-day moving average, which is confirmation of a reversal in strong bullish sentiment.

Encouraged by the internal news on the euro bloc and the dollar's decline, euro buyers can quickly enter the area of local highs above 1.2250. In the most optimistic scenario, they can overcome the level of 1.2300. So purchases now look attractive.

One should not count on an endless decline in the dollar. The euro now looks somewhat protected in this regard, as support factors appear on the horizon.

The euro rally could be accelerated by the vaccine information from Johnson & Johnson. The European Medicines Agency is due to release a decision on the drug on Tuesday. If approved, the vaccination campaign in Europe will accelerate.

Goldman Sachs expects more than 50% of the population to be vaccinated in the largest eurozone countries in the summer. In this regard, they raised the forecast for the euro by the end of the year from 1.2100 to 1.2500.

An additional catalyst for the euro was the announcement of breaking the political deadlock in Germany. The candidate for the post of the new chancellor, according to updated information, will be a moderate representative of the CDU, Armin Laschet. On Thursday, the ECB will hold a regular meeting on monetary policy, its results should support the euro.

At the moment, potential buyers' targets are located at 1.2080, 1.2110, and 1.2160. In the event of a downward breakdown of the mirror level of 1.2040, we will talk about a downward pressure in the pair with a bias towards 1.1980, 1.1950, and 1.1915.