The EUR/USD pair fell during most of Monday’s session, but managed to bounce back in the end in order to form a hammer. The pair looks like it wants to go higher, but it should be mentioned that this pair will continue to suffer at the hands of headline risk going forward. Certainly, most people are painfully aware of the issues with European debt at the moment, but there are always going to be chances for the news to be worse than feared. After all, the market seems continent to simply overlook quite a bit. Those of you who traded in 2007 will undoubtedly remember what a market that refuses to come to grips with reality looks like when it finally has to. And that is the real fear that any bull has to have in the back of their mind.
The 1.3250 level has been rather supportive lately, and this makes sense as it was so resistive earlier. The level is a bit of a “midpoint” between the two larger ones, the 1.30 and 1.35 handles. Because of this, we aren’t as excited to be involved in this pair until we reach one of those larger levels. It is at these “bigger areas” that we find the best trades, and the most reliable ones for that matter.
The last few sessions have all produced hammers, so certainly the risk in the near term seems to be to the upside, and as a result the short-term trade may find value in going long for the next couple of days. However, as we are a bit more conservative, we prefer to see what this pair does at the 1.35 level, as it should continue to be a larger guide for the market overall.
Signs of weakness at that level are what we expect, and we wouldn’t hesitate to sell form it if we get them. Perhaps a shooting star or a bearish outside candle would be a nice signal from there. We think that a short from that position would have room to run, perhaps down to the 1.30 level. Again, the shorter-term trader may find a break of the Monday highs as a signal to buy, but we prefer to look at larger levels in markets that are as prone to shocks as this one has been lately.
Written by FX Empire