The EUR/USD may be entering a more volatile phase of its rally, where historically, euro uptrends become choppier and more prone to corrections. Technical signals, such as bearish momentum divergence and resistance near 1.16, suggest a potential pullback to 1.1200–1.1065 before resuming an upward trend toward long-term targets of 1.18–1.20.

EUR/USD rallies typically begin with sharp, directional moves, but the final phase often experiences more volatility. The 2023 euro rally exemplifies this pattern. Weekly chart analysis indicates RSI divergence, implying a possible weakening in bullish momentum. This often precedes correction or consolidation within a larger uptrend.

Technical Analysis Challenges

On the daily chart, EUR/USD has faced difficulty sustaining levels above 1.16, where supply has built up, reducing short-term upward momentum. BofA considers a pullback to 1.1200 or 1.1065 likely, the latter being the May low, while a modestly higher low than May could reaffirm the ongoing bullish structure despite temporary weakness.

BofA maintains its long-term view with a target range of 1.18–1.20, supported by the 200-month SMA. This phase is seen as a technical digestion period, with expectations for the target to be reached by early 2026.

What we’re seeing now in EUR/USD isn’t unusual if you’re familiar with how these cycles tend to play out. The initial surge was swift and largely unchallenged – the type of movement you usually get when sentiment shifts sharply and the early participants pile in. But that phase rarely lasts. As we approach more historically congested price zones – places like 1.16 – the rally tends to lose traction. It’s like climbing a hill that gradually steepens. Fewer buyers at the top, more sellers looking to offload. So the price starts bumping up against resistance.

When we talk about momentum divergence, especially on indicators like the RSI, we’re essentially picking up on the engine losing power. Prices try pushing higher, but the underlying strength doesn’t back it up. On weekly charts, that’s meaningful and almost always leads to pullbacks or sideways movement. It doesn’t negate the broader direction – not if longer-term supports hold – but it does change the behaviour of the market.

Managing Risk in Choppy Phases

Below current levels, the 1.1200 area has acted as a reasonable springboard before, and further down, 1.1065 holds extra weight after marking the May low. If we return to these zones, they should be watched closely as tests of the trend’s health rather than warning signs of reversal. Tactical repositioning around these levels makes sense, given that the broader structure remains intact. We would expect some to begin fading strength near the upper end of the range and look to deploy capital more aggressively closer to those supports.

The call for a retreat before further gains isn’t guesswork – it’s grounded in how previous cycles look once momentum slows. The shift towards a choppier phase, as observed before, often brings more false starts and sudden reversals. For anyone managing delta risk, this implies more care is needed in the way exposure is scaled. Position sizes may need to reflect the higher noise that comes with this part of the trend. Carrying too much direction here risks getting stopped out at precisely the wrong time.

The 200-month simple moving average still underpins the medium-term outlook, which remains geared toward a higher euro over the next couple of years. But in the shorter timeframe, price may oscillate more aggressively. Those handling optionality may find premium more attractive in the near-term, particularly if implied volatility lags realised moves.

Looking at the structure through that lens, a higher low above the May base would reinforce continuity in the uptrend. It is through moments like this – where the rally stutters but doesn’t collapse – that confidence takes root. Watch for reaccumulation patterns forming on the retracement. A measured digestion phase before continuation fits the historical template and keeps long-term targets viable.

All of this suggests increased sensitivity to short-term positioning and stop placements is warranted. Understanding where trailing flows may be concentrated – especially around prior reaction highs – can offer a better read on where short squeezes and exhaustion gaps might form. We prepare best by planning scenarios rather than reacting emotionally to shakes in the trend. Timing remains everything in these zones of transition.

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