The EUR/USD currency pair has experienced a sharp and sustained rally in recent weeks, surging to levels not seen since 2021. This week, the pair reached an intraday high of 1.1825, marking a 16% increase from its 2025 low and a staggering 23.6% rise from the lows of 2022. 

This explosive momentum is tied directly to the weakening US dollar, concerns over current US trade tariffs, and speculation around the upcoming nonfarm payrolls (NFP) data. However, technical indicators now signal that the euro may be overbought, setting the stage for a potential pullback. This article from Servelius provides a detailed look at the matter, courtesy of their knowledgeable brokers.

Euro Strengthens as the Dollar Deteriorates

The rally in EUR/USD has been fueled primarily by a significant decline in the US dollar index (DXY). The DXY, which measures the value of the US dollar against a basket of major currencies, has fallen to 96.45, down from a year-to-date peak of 110.00. This represents a rapid depreciation, sparking a reversal of flows into euro-denominated assets.

This price action was further catalyzed by disappointing US labor market data. According to ADP, the private sector lost over 33,000 jobs in June, raising concerns about a softening labor market. 

A significant contributor to this slowdown appears to be business uncertainty stemming from the US President’s proposed tariffs. Many firms are pausing hiring and delaying expansion plans, weighing on the demand for labor.

As traders brace for Friday’s official NFP report, the consensus estimate is that the US economy added only 110,000 jobs, a noticeable decline from the previous reading of 139,000. At the same time, the unemployment rate is forecasted to rise to 4.3% from 4.2%, reinforcing the picture of a cooling economy.

Upcoming Economic Catalysts

The nonfarm payrolls report is not the only data event likely to impact EUR/USD. The US will also release:

• Initial and continuing jobless claims
• Imports and exports data, expected to highlight the impact of tariff uncertainty
• ISM Services PMI
• S&P Global Services PMI

These figures will offer granular insight into the underlying health of the US economy. Of particular interest will be the trade balance, given that exports and imports are likely to be disrupted by renewed geopolitical and policy risk.

Investor sentiment remains highly divided. Morgan Stanley has taken a bearish stance on the US dollar, forecasting a decline to 90.00 on the dollar index. In contrast, ING maintains that the selloff may be overdone, and the greenback may be poised for a technical rebound. 

Such divergence in views underscores the volatility risks surrounding the EUR/USD pair in the near term.

EUR/USD Technical Analysis: Overbought Conditions Flash Caution

From a technical perspective, the EUR/USD currency pair is showing signs of exhaustion despite its bullish momentum. The pair has decisively broken above key resistance at 1.1572, a level that served as a major ceiling during April and June of this year. 

This breakout has been accompanied by strong bullish confirmation, with the pair trading well above its 50-day Exponential Moving Average (EMA).

However, several indicators now suggest that the pair is overbought:

• The Relative Strength Index (RSI) has pushed above the 70 level, which traditionally signals overbought territory and potential for a price correction.
• The Percentage Price Oscillator (PPO), a momentum oscillator similar to the MACD, remains firmly above the zero line, a bullish signal that has been intact since February.

Despite this, technical traders will be watching closely for a retracement back to the 1.1572 support zone. A dip toward this level would represent a healthy correction within the context of a broader uptrend.

If EUR/USD continues higher, the next psychological resistance levels lie at 1.1900 and 1.2000, but such moves would require either a weaker-than-expected NFP report or confirmation of further deterioration in the US macroeconomic outlook.

Conclusion

The EUR/USD rally has been impressive, backed by technical strength, macro trends, and softening US data. However, with the pair now deep in overbought territory, and the market bracing for a potentially market-moving NFP report, caution is warranted. 

The next few trading sessions may determine whether EUR/USD extends its gains above 1.1825 or pulls back toward support amid a potential dollar resurgence.

Traders should stay vigilant, watch key economic indicators, and rely on technical signals to guide entry and exit points. With the euro’s overbought status flashing warnings, the EUR/USD signal ahead of NFP is clear: prepare for volatility.