The EUR/USD pair initially fell during the course of the day on Thursday, but found enough support below the 1.18 level to bounce and form a little bit of a hammer. This hammer suggests that the buyers are in fact going to stay here, and we recognize the 1.18 level as been massively supportive on the longer-term charts. With the nonfarm payroll numbers coming out, we should get some type of action in this pair today, and we have two possible outcomes: we the break above the top of the hammer which we think sends this market looking for the 1.20 handle, only break below the bottom of the hammer, and that sends this market into a freefall. With that being said, we believe that a stronger than anticipated jobs number coming out of the United States should in fact send this pair much lower.
If we can bounce, the 1.20 level will of course be resistive based upon the fact that it is a large, round, psychologically significant number, and the fact that we had a gap form there. That of course should offer quite a bit of resistance, but if we do get above there, we could go as high as 1.2350 in the short-term.
On the other hand, if we break the bottom of the hammer for the session on Thursday, that would open up the floodgates so to speak when it comes to selling off this pair. At that point in time, we could see this market going as low as the 1.10 level. It’s quite a significant fall, but truthfully the way this pair has been selling off we have to make a stand sooner or later. This is a perfect place to make that stand, but if we break down below here the selling will be massive and vicious. That would lead us to a place where we would sell off every rally they came about, as the sellers will have firmly taking control yet again. However, we need to see the reaction to the nonfarm payroll numbers first.