EUR/USD has staged an impressive rally after breaking above its long-term descending trend line, signaling that a reversal from the extended downtrend could be gaining momentum.
The pair is currently trading at 1.1691, having surged from lows around 1.1574 to test resistance near the 1.1750 minor psychological level.
The breakout above the falling trend line that had capped price action for several months represents a significant shift in market sentiment. However, after the sharp rally, the pair appears poised for a pullback to retest key support levels, which could provide an opportunity for additional buyers to join the uptrend.
The Fibonacci retracement tool applied from the recent swing low to swing high highlights crucial areas where bullish momentum might be reinforced. The 38.2% Fib level is located at 1.1692, while the 50% retracement sits at 1.1670. A deeper correction could reach the 61.8% Fib at 1.1647, which coincides with the broken trend line and could serve as the line in the sand for a bullish continuation.
The 100 SMA (blue line) has crossed above the 200 SMA (red line), confirming that the path of least resistance has shifted to the upside and that the rally is likely to gain traction from here. Both moving averages are starting to flatten and turn higher, suggesting strengthening bullish pressure could be building.
If any of these Fibonacci levels hold as support, EUR/USD could resume its climb toward the initial resistance at 1.17500 or potentially higher toward 1.1800. The stochastic oscillator is pulling back from overbought territory, indicating that sellers are taking a breather. However, the oscillator has plenty of room to move lower before reaching oversold conditions, which means a healthy correction could still unfold.
Meanwhile, the RSI is retreating from elevated levels around 80, suggesting that buying momentum remains strong despite the near-term pullback. A bounce off the Fibonacci support zones could reignite bullish interest and propel the pair toward new recovery highs.