The EUR/USD pair initially broke down below the 1.18 level during the session on Friday, but as you can see sold buyers below in order to turn things back around and form a hammer. That hammer of course suggests that the 1.18 level might in fact be just a significant as we have suspected. After all, it is support on the monthly chart, and that is a big deal. If we break down below the hammer from Thursday, that would be a horrifically negative signal for the Euro. On the other hand, the fact that we have formed two hammers in a row suggests that we are probably going to bounce to the 1.20 level in order to fill the gap.
Is a very common theme in technical analysis, so we anticipate that being the case. Ultimately, the 1.20 level is massively resistive, but we break above there we could see this market go as high as 1.2350 without too many issues. The 1.25 level above is a target as well, and once we get above there, we could be talking about a long-term trend change.
On the other hand, we broke down below the bottom of the hammer on Thursday, that horrific signal sends this market looking for the 1.10 level without hesitation. Any bounce at that point time would have to be thought of as a potential selling opportunity, as it would just simply show just how strong the US dollar is. However, there were words of potential dovish this coming out of a couple of the Federal Reserve members. Their suggested perhaps a rate hike during 2015 doesn’t make sense, and that of course would cause this market to correct itself. With that, we believe that there is a significant upside risk at this point in time, and therefore feel much more comfortable buying unless of course we get some type of massive breakdown. It has been a long time since we been able to say that we would prefer to buy this market, but we may have finally found that level.