The euro may be approaching a turning point against the US dollar after EUR/USD fell below $1.135 and moved into technically oversold territory.
The currency pair has come under sustained pressure, but the latest move has pushed the relative strength index below 30 and taken EUR/USD to its lower Bollinger Band. These indicators suggest the euro could be due for a pause following its recent decline.
EUR/USD has broken below the $1.135 support level, which now becomes an important test for any recovery. A move back above this level would strengthen the case for a broader rebound, with the next potential target around the 20-day moving average at $1.14.
The immediate setup therefore offers scope for the euro to recover from its recent weakness, although the currency will need to overcome resistance around the former $1.135 support level and the 10-day exponential moving average.
The technical picture is particularly notable because EUR/USD has reached oversold conditions after a period of sustained selling. A move higher from these levels would indicate that buyers are beginning to return to the market and could mark an initial change in momentum.
However, the euro’s broader trend remains under pressure. Fiscal concerns and elevated oil and diesel prices have contributed to the recent weakness, meaning a sustained recovery is likely to require an improvement in the underlying news flow as well as a technical rebound.
The $1.135 level is therefore likely to remain central to the next move. If the euro can reclaim and hold above it, the recovery could extend towards $1.14. If it fails to stabilise, the focus could shift towards the next major support area around $1.109, which corresponds with the low recorded on 12 May.
The potential for a recovery is significant from a technical perspective because the recent decline has already pushed EUR/USD into oversold territory. Markets do not necessarily need an immediate fundamental reversal for such conditions to produce a short-term rebound, as positioning and profit-taking can also help support a move higher.
CMC Markets plc (LON:CMCX) is a UK-based financial services company that offers online trading in shares, spread betting, contracts for difference and foreign exchange across world markets.
