EUR/USD: The Critical Range That Will Define the Next Major Move
By Gareth Soloway, Chief Market Strategist at VerifiedInvesting.com
The EUR/USD pair has been telling us a fascinating story for years, and right now, we're at what I believe is a pivotal chapter in this currency saga. After carefully analyzing the weekly chart patterns that stretch back to 2017, I've identified a critical technical structure that will likely dictate price action for the next 12-24 months.
The Big Picture: A Converging Technical Structure
What immediately jumps out when looking at the EUR/USD weekly chart is the formation of a long-term technical structure that's been years in the making. We have a descending trendline that connects the major highs from 2017-2018 (around 1.24-1.26) through the 2020-2021 peaks (around 1.22-1.23). At the same time, we have an ascending trendline that's been building since the 2022 lows, when EUR/USD briefly plunged below parity against the dollar.
These two trendlines aren't running parallel - they're gradually converging toward each other, creating what I've identified as a critical resistance zone between 1.16-1.18. This isn't just any resistance level; it represents the intersection of multiple technical factors that have consistently influenced this pair for nearly a decade.
The Range-Bound Reality
After studying this chart extensively, I've come to a clear conclusion: EUR/USD is likely to remain contained between our 1.16-1.18 resistance zone and the major support at 1.05 for the foreseeable future. This creates a well-defined range that savvy traders can potentially exploit.
Think of this range as the boundaries of a battlefield where bulls and bears will clash repeatedly over the coming months. The price is essentially trapped in this arena until one side can muster enough strength to break through definitively.
Reading the Price Action Roadmap
The white arrows I've drawn on the chart map out the most probable path based on these technical boundaries. We're likely to see the euro make another push toward the resistance zone, getting rejected, and then cycling back down toward the 1.05 support level. This oscillation pattern could repeat again as the market digests various fundamental factors impacting both currencies.
What's most intriguing here is that the EUR/USD appears to be setting up for a series of progressively higher lows while continuously testing a stubborn overhead resistance. This often indicates underlying strength building beneath the surface - like a spring slowly compressing, storing energy for an eventual move.
The 1.05 Support: A Critical Floor
The horizontal yellow line at 1.05 represents what I call "major support," and it's not just an arbitrary level I've selected. This price zone has repeatedly demonstrated its significance, most recently serving as a springboard for bounces in late 2022 and again in 2024.
When we look at historical interactions with this level, the price behavior tells us something important: buyers consistently step in with conviction around 1.05. It's as if there's an invisible floor that institutional traders recognize and respect. Each time the EUR/USD approaches this level, we typically see volume patterns shift as larger players begin accumulating positions.
What Makes the 1.16-1.18 Resistance Zone So Powerful?
Let's unpack why the 1.16-1.18 zone represents such formidable resistance. It's not merely the convergence of our two trendlines, though that alone would be significant. This level also aligns with several previous reaction points where the euro has struggled to advance further against the dollar.
Additionally, the psychological aspect of round numbers shouldn't be underestimated. The 1.18 level sits just below the significant 1.20 threshold that has historically acted as a major inflection point for EUR/USD. Markets often begin reacting before these big round numbers are actually reached.
How to Trade This Setup
So, what does this mean for you as a trader or investor? Rather than trying to predict a major breakout or breakdown before it happens, the more prudent approach is to respect the defined range until proven otherwise.
For short-term traders, this presents multiple opportunities:
- Look for rejection signals as price approaches the 1.16-1.18 resistance zone
- Watch for bounces off the 1.05 support, particularly with confirming signals like bullish engulfing candles or positive divergence on momentum indicators
- Consider fading extreme moves as price approaches either boundary of the range
For longer-term position traders and investors, the key is patience. The real opportunity will come when we eventually see a decisive break from this range.
What Would Invalidate This Analysis?
No analysis is complete without considering what would prove it wrong. Here's what I'm watching for:
If EUR/USD manages to close decisively above 1.18 on a weekly basis (ideally with increasing volume), this would suggest the resistance zone has been breached, potentially opening the door to a more significant rally toward 1.20 and beyond.
Conversely, if price breaks below 1.05 and stays there for more than a week, that would signal that the long-term support has failed, potentially triggering a more dramatic decline.
The Bigger Implications
What makes this setup particularly interesting is what it tells us about the broader economic narratives at play. The euro has been remarkably resilient despite Europe's economic challenges, suggesting there may be underlying weakness in the dollar that hasn't fully expressed itself yet.
The compression between these two major trendlines is creating a narrowing window of indecision - and markets don't stay indecisive forever. When a significant breakout or breakdown eventually occurs, it will likely correlate with a major shift in monetary policy divergence between the Federal Reserve and the European Central Bank.
Conclusion: Anticipating the Next Chapter
For now, investors should anticipate price remaining contained between the resistance zone at 1.16-1.18 and the major support at 1.05. Each approach to either boundary presents a tactical opportunity, but the true strategic play will come when we finally see a decisive breakout or breakdown.
Keep in mind that forex markets often move in anticipation of fundamental shifts rather than in reaction to them. By the time economic data confirms a trend, the price has usually already made its move. That's why watching these technical levels is so crucial - they often signal the market's expectations before the consensus narrative catches up.
The key for traders now is vigilance: watch for any sign that the price is breaking out of this well-established range, as that will likely mark the beginning of the next major directional move in the EUR/USD pair.
Disclaimer: This analysis is for educational purposes only and should not be considered investment advice. Always conduct your own research before making any trading decisions.
