EURUSD shows signs of overheating after recent rally

EURUSD opened August 3 near local highs, carrying the momentum of a sharp rally into the new week. However, cracks are starting to appear. The first red candle has emerged, signaling that the pair may be running out of steam after an extended period of growth.

Bollinger Bands tell a similar story. For nearly a month, the channel had been compressing—a classic calm before the storm. When the rally finally kicked off, these bands expanded sharply, with the price slicing through the middle line and then punching above the upper one. This widening is a testament to buyer strength, though it also screams overextension relative to recent weeks. The market needs a breather before it can go higher again.

The Stochastic Oscillator reinforces the cautionary tone. Both lines have climbed deep into overbought territory and are now starting to roll over—a telltale sign that a consolidation or pullback may be imminent.

Yet, not all indicators are waving red flags. The Chaikin Oscillator, after hovering near zero for a month, has turned positive alongside the rally. In other words, buying volume is flowing in, not drying up. This suggests any correction is likely to be a healthy pause, not a trend reversal.

On the fundamental side, the single currency is getting a boost from a weaker dollar, driven by falling oil prices and a de‑escalation in US‑Iranian tensions. Concurrently, eurozone inflation accelerated to 2.9%, strengthening the case for another interest rate hike by the European Central Bank (ECB) in September.

That said, key risks remain. This week's US jobs report (Nonfarm Payrolls) and any fresh Middle East flare‑up could reignite oil prices and strengthen the greenback, threatening to derail the euro's advance. These are the wildcards that could change the game.

For those ready to make a move, here is the trading plan:

Buy EURUSD on a pullback within the 1.15000–1.15150 range. Place Take profit at 1.16100. Set Stop loss at 1.14500.

This forecast is valid from August 3 till August 10, 2026.