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The euro's setup against the dollar has strengthened, but the rally faces a significant test this week.
EUR/USD has staged an impressive recovery from the July lows, breaking above former resistance at 1.1447, but the rally now arrives at the most important technical test seen in months.
The pair is challenging the descending trendline that has defined the downtrend since January, while also running into the 100-day moving average at 1.1569, which is now mirroring and reinforcing that graphical trendline.
Above: The euro-to-dollar rate at daily intervals.
Together, these create a formidable resistance zone that is likely to determine whether the recent advance develops into a genuine trend reversal or proves to be another bear market rally.
The key question for the week ahead is whether buyers have enough momentum to force a decisive break of that resistance cluster.
Momentum has improved markedly, with RSI climbing to 63, its strongest reading in weeks, but it remains below overbought territory, suggesting there is still room for another push higher.
Even so, after such a rapid advance from the July lows, some consolidation beneath resistance would be a perfectly healthy development.
Altogether, the breakout above 1.1447 looks genuine, momentum has strengthened, and buyers have carried price right into major resistance.
I don't think the most likely outcome is an immediate collapse.
Instead, I suspect the market probes this resistance cluster over the coming sessions. Whether it ultimately breaks through or is rejected is less certain.
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