The EUR/USD currency pair saw significant volatility from mid-May through early June, as renewed U.S. dollar weakness drove the pair from lows of 1.1140 to highs of 1.1610. Despite testing the 1.1630 resistance level, the euro failed to hold gains and retreated after weeks of consolidation near this key zone.
Sunday’s market open was marked by gap movements across major forex pairs, including EUR/USD, following escalating geopolitical developments. While most gaps have partially closed, prices remain divergent from Friday’s close.
A major theme last week was the unwinding of short positions against the U.S. dollar. This shift intensified as the Dollar Index fell to a low of 97.69.
Tensions in the Middle East also weighed on sentiment. The United States formally entered the Israel-Iran conflict, prompting a warning from the Kremlin on Sunday. A spokesman said that U.S. involvement “increased the number of participants in the conflict and ushered in a new spiral of escalation.” As markets absorb the news, further volatility is expected.
The uncertainty has brought the U.S. dollar back into focus, prompting traders to reassess key technical levels in the EUR/USD pair. The euro had previously rejected the 1.1630 high, following a bearish divergence on the daily RSI. This signaled weakening momentum and triggered a minor correction after the recent Federal Reserve meeting.
Despite the pullback, buyers leveraged the 20-day moving average to push the pair into the 1.1520–1.1573 resistance zone. Meanwhile, the 50-day and 200-day moving averages—located at 1.1350 and 1.0850, respectively—remain below current levels, suggesting room for downside if selling pressure increases. However, such a scenario is not yet evident.
Mean-reversion buying produced a strong bullish 4-hour candle, signaling renewed interest in testing key resistance levels. Sellers had failed to maintain control below the 1.1450 support level, allowing prices to rally beyond the gap left at the start of the week.
Momentum has strengthened as the 4-hour RSI moved back above the neutral 50 level and broke above the 50-period moving average. A dip back below this average could return the advantage to sellers.
As of now, hourly candles are closing just below intraday highs, with the pair approaching the 1.1550 pivot area—within 100 pips of the mid-May upward trendline. To sustain bullish momentum, buyers must break and hold above this trendline, setting the stage for a test of the psychological 1.1600 level. Failure to do so could invite renewed selling, with potential downside targets near 1.1400.
