EUR/USD has reached levels offering strong long-term support as Italian political concerns wane, shifting the balance of risks to a more neutral point, which suggests the recent sell-off will lose momentum and the pair may consolidate in a 1.15-1.20 range.
Traders remain long and short-term technicals are very bearish encouraging speculators to pick tops, but the surge in short selling that saw EUR 7.5 billion of fresh bearish bets established in May will be a major drag on the down move.
With EUR/USD back on very well-trodden ground littered with options that have an anchoring effect, pressure from U.S. rates easing with softer Treasury yields, and a softer yuan alleviating a key pressure on the euro, a period of consolidation looks likely.
A break of major support around the 200/100-WMAs 1.1425/20 and 50% retrace of the rise from 1.0340 at 1.1448 needs a new major bearish driver, far greater than the position adjustment that has fuelled the drop since April.
Yet regaining the 200-DMA at 1.2013 is equally unlikely unless traders start refocusing on ECB tightening that's unlikely before September.