EUR/USD Struggles as Bearish Sentiment Grows Amid Rally Exhaustion

EUR/USD is trading at 1.10635, with the pair facing increasing downward pressure as its recent rally appears to be losing steam. Options traders have turned bearish on the euro, as indicated by the one-month risk reversals for EUR/USD, which have dropped below zero. This shift suggests that the market is now placing a premium on protecting against further declines in the euro, reflecting growing concerns about the sustainability of its recent gains​.

The euro's rally to a one-year high of 1.1202 last week has faltered, and the currency has since pulled back, hitting a low of 1.1042 earlier this week. The recent weakness is compounded by expectations of strong U.S. jobs data, which could reduce the likelihood of aggressive rate cuts by the Federal Reserve. This, in turn, could bolster the dollar, putting additional pressure on the euro​.

Investors who had heavily bet on a stronger euro may now be reconsidering their positions. With the European Central Bank (ECB) expected to continue its rate-cutting cycle, the euro could face further headwinds, especially if the U.S. economic data remains robust and diminishes the case for Fed rate cuts​.

Technically, EUR/USD needs to hold above the 1.1050 support level to avoid deeper corrections. A break below this level could see the pair testing the 1.1000 psychological support, while resistance around 1.1100 remains a critical level for any potential recovery.