Cunha will join the team on January 1 before committing to a permanent four-year contract for a potential price of up to 40 million euros (£35 million).
He is the first signing made by the newly appointed Julen Lopetegui, who took over as manager of Wolves last month.
The attacker started his professional career in 2017 with Swiss club Sion. He later played for RB Leipzig and Hertha Berlin in Germany before joining Spanish club Atletico Madrid in the summer of 2021. In 54 appearances for Atletico Madrid, he has scored seven goals