Just one of two strong EUR/USD trends will endure, and the outcome will have great bearing on other major currencies as well as some influence on the entire FX market.

This year's 1.2084 high slightly exceeded the 1.2016 target for a minor correction of the downtrend from 1.6040 in 2008 to 0.9528 in 2022. However, this proved to be a false break, followed by the liquidation of the second-largest bullish wager on record, worth $27 billion.

Interestingly, though, the result of this sea change in positioning did not push the pair down too far. The drop to 1.1409 fell shy of the 1.1336 target for a minor correction, or 38.2% retracement, of the 1.0125–1.2084 rise seen between February 2025 and January 2026.

There has never been a close above the 200-month moving average, which was at 1.1940 when EUR/USD reached this year's high in January and has since fallen to 1.1898. Its closer proximity to EUR/USD's current level, along with the reduction in bullish positioning, heightens the chance of a break. However, EUR/USD has been trapped by the divergent pulls of stocks and oil.

While the surge in oil weighs on EUR/USD, the continuing boom in stocks is providing further support for the EUR/USD rally that has occurred alongside it.

At some stage, traders will take a decisive position, guided by oil, stocks, the conflict in the Middle East, and its implications for inflation and economic growth. This will result in either the resumption of a downtrend that has been refreshed by a correction and has the potential to run far below parity, or a bigger rally that, without the restraint of bullish wagers, could swiftly extend toward 1.28 and will probably reach 1.35.

There has been a recent bullish signal, with the 21-month moving average at 1.1302 rising above the 100-month moving average at 1.1237. The overbought conditions evident when the pair peaked in January have also been alleviated, with the top of the 20-month Bollinger Bands at 1.2358 allowing room for a larger rise.
Targets for resumption of the downtrend lie below parity

Targets for a bigger correction of the EUR/USD downtrend and key
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)