The EUR/USD pair might be entering a more volatile phase in its rally. Historically, upward trends in the euro can become choppy and are more likely to experience corrections. Current technical indicators, such as bearish momentum divergence and resistance around 1.16, hint at a possible pullback to 1.1200–1.1065 before continuing an upward trend toward long-term goals of 1.18–1.20. Typically, EUR/USD rallies begin with sharp, clear movements, but the final phase often sees increased volatility. The 2023 rally in the euro illustrates this pattern. Analysis of the weekly chart shows RSI divergence, suggesting bullish momentum could be weakening. This often leads to corrections or sideways movement within a larger upward trend. On the daily chart, EUR/USD struggles to maintain levels above 1.16, where selling pressure has built up, reducing short-term upward momentum. Bank of America (BofA) thinks a pullback to 1.1200 or 1.1065 is likely, with 1.1065 being the low from May. Even if prices dip, a higher low than May would support the ongoing bullish trend despite temporary weakness. BofA holds onto its long-term outlook with a target range of 1.18–1.20, supported by the 200-month simple moving average (SMA). This current phase is seen as a time for technical adjustment, with expectations of reaching the target by early 2026. What we are witnessing in EUR/USD is typical for those familiar with these cycles. The initial surge was quick and faced little challenge because sentiment shifted sharply, and early participants jumped in. However, that phase is rarely sustainable. As we approach more congested price areas – such as 1.16 – the rally tends to slow down. It’s like climbing a hill that gets steeper. There are fewer buyers at the top and more sellers looking to sell, causing prices to bump against resistance. When we discuss momentum divergence, particularly with indicators like the RSI, we notice that the engine is losing power. Prices might be trying to push higher, but the underlying strength isn’t there to support it. On the weekly charts, this divergence is significant and tends to lead to pullbacks or sideways movement. While it doesn’t undermine the overall trend if longer-term supports hold, it alters market behavior. Below current levels, the 1.1200 area has served as a good support level in the past, and 1.1065 is important since it marks the May low. If prices drop to these zones, they should be monitored closely as indicators of the trend’s health, not as signs of reversal. It makes sense to strategically position around these levels since the overall structure remains intact. Traders might scale back on strength near the upper range and invest more aggressively closer to those support levels. Anticipating a pullback before further gains is not just a guess; it’s based on historical cycles once momentum slows down. Shifting to a choppier phase often leads to more false starts and sudden reversals. For those managing delta risk, this means being careful about how exposure is managed. Position sizes may need to adjust to account for the increased noise in this trend phase. Holding too much direction can lead to being stopped out at unfortunate times. The 200-month simple moving average continues to support the medium-term outlook, which leans towards a stronger euro over the next couple of years. However, in the shorter term, prices may fluctuate more. Those dealing in options may find premiums more appealing in the near term, especially if implied volatility lags behind realized movements. Looking at this structure, a higher low above the May low would strengthen the uptrend. It’s during moments like these—where the rally falters but doesn’t collapse—that confidence begins to build. Watch for patterns of reaccumulation during the pullback. A gradual adjustment phase before the next upward movement fits historical trends and keeps long-term targets attainable. All this indicates that being mindful of short-term positioning and stop placements is necessary. Recognizing where trailing flows might concentrate—especially near prior highs—can give insight into where short squeezes and exhaustion gaps could emerge. Planning for various scenarios, rather than reacting emotionally to fluctuations, prepares traders best. Timing is crucial in these transitional zones.

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