The EUR/USD pair as you can see initially fell during the bulk of the session on Monday, testing the 1.18 level for support. With that being the case, the market looks as if it bounced from there based upon significant buying pressure for the third session in a row, and the fact that we are forming a hammer for the third day in a row tells us that there is a massive amount of buying pressure below. With that, we believe that the EUR/USD pair is going to continue to go higher, but it will obviously be very messy in this general vicinity because it is a countertrend trade, and quite possibly a trend change.
With that being the case, I feel that the 1.18 level is vital for the buyers as it is significant support on the monthly charts based upon the action that we’ve seen over the last five or six years. Because of this, it would take a significant amount of bearish pressure to break down below that area, but if we did that would be massively bearish for the Euro obviously. On the other hand, it does appear that we are not only oversold, but are at the perfect spot to see buyers step back in. By doing so, they will more than likely push this market back to the gap lower at the 1.20 level. And with that, we see the level as the next major area of resistance, but if we can get above there we could go much higher, probably to the 1.2350 level next.
Quite frankly, if there’s going to be a place where the trend changes, it is going to be here. It doesn’t mean that is going to be an easy move, but ultimately the market should then head towards that area. The fact is that we have formed three hammers in a row, and that is in fact very rare to see in the Forex markets as it normally means that serious buying pressure is suddenly entering the marketplace. With that, we are long.