Title: EUR/USD Faces Key Technical Crossroads: Reversal Could Trigger Significant Decline
By: Trading Desk (Source: TheTradable.com, original article by IG Market Analyst)
The EUR/USD currency pair has reached a critical technical level, presenting a make-or-break scenario that could determine the near-term direction of the euro against the US dollar. As technical indicators show signs of weakness following a strong rally, traders are watching closely for either a breakout above resistance or a reversal that could lead the pair toward significant support levels. This analysis takes a closer look at the key support and resistance zones, technical signals, sentiment data, and potential scenarios that could drive near-term price action.
After enjoying a solid upward trend in recent weeks, the euro’s momentum is starting to fade as the EUR/USD pair approaches a major resistance area. This zone, previously tested and rejected, coincides with substantial Fibonacci retracement levels and historical price swings, making it a pivotal point for near-term market sentiment.
Technical Breakdown: Resistance Zone in Focus
The euro has been rallying steadily against the dollar since early April 2024. The move higher was largely driven by broad dollar weakness and expectations around potential changes in European Central Bank policy. However, the bulls now face a hard ceiling at the 1.0900 to 1.0930 zone.
– This resistance level coincides with:
– The 61.8 percent Fibonacci retracement from the February-to-April selloff
– Horizontal price congestion from prior swing highs in mid-March and late January
– The upper boundary of a rising channel pattern formed during this recent uptrend
While the initial test of this level was met with indecision, traders have yet to follow through with a convincing breakout. This has raised questions about the sustainability of the rally and whether it was driven more by weak USD flows than genuine euro strength.
Bearish Reversal Risk
As price stalls under resistance, early signs of potential bearish reversal are emerging. Multiple indicators point to the risk that sellers could soon regain control. If that happens, traders may see a pullback toward lower support zones.
– The most notable bearish signals include:
– Stalling momentum near key Fibonacci resistance
– Bearish divergence on the Relative Strength Index (RSI), suggesting weakening bullish pressure despite rising prices
– Long upper wicks on recent daily candles, indicating profit-taking and reluctance to push prices higher
– Proximity of key moving averages suggesting price exhaustion
In technical terms, the rejection from this area could trigger a corrective move, particularly if the dollar finds support and Treasury yields rise.
Potential Downside Targets
If the reversal does gain traction, technical chart structures provide a roadmap for where EUR/USD could decline next. Multiple support levels lie below current prices, and a pullback into these areas would be consistent with the pair remaining within a broader range.
– Key downside support levels on the chart include:
– 1.0800 to 1.0780 – corresponds with the midline of the recent rally and near the 50 percent retracement of the April move
– 1.0720 – this previous resistance zone turned support aligns with the 200-period moving average on the 4-hour chart
– 1.0630 – a stronger support zone, representing prior swing lows from early April and a psychological round number
Should the reversal extend beyond the above levels, the bearish case would strengthen and possibly signal a larger correction underway.
Fundamentals and Sentiment Factors
While technicals are pointing to the possibility of weakness, the broader fundamental backdrop continues to play a central role in influencing the EUR/USD outlook. Several key factors are currently at play:
– The interest rate outlook for both the Federal Reserve and European Central Bank
– Recent inflation data and labor market statistics in both regions
– Risk appetite in global markets, which affects overall USD flows
– Bond market behavior, especially Treasury yields
– Market sentiment reflected
Read more on EUR/USD trading.