June 25 (Reuters) - EUR/USD is approaching a point that if broken should result in the unwind of all of the losses that resulted from the U.S. tightening cycle.

The limit for a correction from 2021's peak at 1.2349 to 0.9528 in 2022 is 1.1745 which is a 78.6 percent retracement. There is a strong chance that a move beyond this level results in a return to the January 2021 high at 1.2349.

Should that occur then EUR/USD may also rise beyond another very important level at 1.2016 which is the target for a minor correction of the drop from the record high at 1.6040.

With the unbroken 200-MMA nearby, there would usually be good reason to anticipate a significant high around 1.20 but should 1.1745 give way during an unfinished easing cycle it may be prudent to insure against a rise that could reach 1.25.

It is unlikely that speculation alone is suffice to lift EUR/USD much beyond 1.20, nor will the expected changes in rate differentials with the eurozone during the U.S easing cycle, although they will support a bigger move higher.

However, there appears to have been a major change in thinking about the dollar that is leading central banks to shift the balance of their reserves.

These changes, which will be lasting unlike speculation, could be very large, with enough power to lift EUR/USD much further.
Key EURUSD retracement target


The significance of 1.20

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)