EUR/USD Technical Highlights:

• EUR/USD continues to hold major support around 11500
• Descending wedge has a bearish tilt to it, but…
• We we’ll run with a top-side breakout should it develop
• US Dollar Index (DXY) posted back-to-back bearish reversal bars

To see our intermediate-term fundamental and technical perspective on EUR/USD, check out our just releasedDailyFX Q3 Euro Forecast.

During the past few weeks the euro found support three different times via the 11500-line, which roughly represents the top of the 2015/16 range. Friday’s rip was impressive enough to cast doubt on the notion that the descending wedge developing since late-May will lead to an eventual breakdown.

Should this 3rd attempt to trade lower prove to have given the euro a passing grade, a recovery in the week ahead into the 11800s and higher could quickly develop. Trade above 11720 will have focus on the ECB-day high at 11852. Should the euro falter yet again, though, pressure on the 11500-level might become too great to hold. It’s looking like the less probable scenario after the late-week surge, but a break of 11500 will in all probability have sellers hitting bids in earnest.

Overall, EUR/USD is poised to trade higher in the days ahead, and while this may offer some good top-side opportunities, the general feeling is that it will be a recovery type rally and not a full-on bull market move. A breakout above the top of the wedge (April trend-line) will have focus on dip-buying opportunities on the 4-hr chart. A matured descending wedge with a solid break below 11500 will put us in the sellers' camp.

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EUR/USD Daily Chart (Descending Wedge Topside breakout?)

EUR/USD Weekly Chart (Holding Support well so far)

US Dollar Index Posted back-to-back bearish reversal bars

Looking at the US Dollar Index (DXY) weekly chart, last week was the second of a pair of bearish key-reversals, which is a solid indication that we’ll see follow-through on the downside in the days ahead. The euro largely dominates the index with a weighting of 57%, but broadly speaking currencies look headed towards gaining grown versus the dollar.

US Dollar Index (DXY) Weekly Chart (Double Reversals)

EUR/USD Sentiment

As perIG Client Sentiment, traders are currently long by a slight amount with a long/short ratio of 1.10. Should we see this gauge quickly flip to strongly negative in the very near-term, it will be considered a contrarian indication that the euro is indeed going to continue gaining ground.

EUR/USD IG Client Sentiment

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX