EUR/USD has broken through support at $1.135 and is now reaching oversold conditions, with a relative strength index below 30 and the exchange rate trading at its lower Bollinger Band. This does not mean the decline in EUR/USD is over, but it may mean the euro’s sell-off against the dollar is due for a pause.
If EUR/USD reverses, the recovery may be short-lived, with strong overhead resistance near the 10-day exponential moving average and around $1.135, which has shifted from a major support level to a major resistance level. If the currency pair can rise above resistance, it could extend its recovery further, potentially returning to the 20-day moving average at $1.14.
However, oversold conditions can also work off through sideways trading, which may ultimately be a bearish indication. This would suggest EUR/USD lacks the buying interest needed to push the exchange rate higher and could ultimately set up the next leg of the decline.
EUR/USD has been weakening for fundamental reasons, including fiscal concerns and high oil and diesel prices. This means that, for EUR/USD to rally sustainably, the news flow will likely need to change.
If EUR/USD continues to decline and cannot stabilise or enter a period of consolidation, the next support area could come into play, potentially pushing the exchange rate to around $1.109. This level corresponds to a low established on 12 May.
EUR/USD daily, February 2023 – present
