The EUR/USD pair fell hard during the session on Thursday, breaking well below the 1.37 level, but part of this would’ve been based upon news headlines coming out of Spain that the European Central Bank might bring its rate down to negative real rates. That of course would drag the value of the euro down overall, and send money running back across the Atlantic to head to the United States. Under normal circumstances, that would probably be the case, but the Euro seems to have 9 lives.
Because of this, it does not surprise us that although we ended up forming a hammer at the supportive level, and with that we think that it’s very possible the market heads higher from here. Quite frankly, if nothing else there is an excellent risk to reward ratio here, so therefore breaking the hammer to the upside has us buying this market, and aiming for much higher levels. We could go as high as 1.40 given enough time, as it is possible that we are forming a 300 pips tall consolidation area.
Because of this, we feel that this could be a longer-term signal in the making, and if you have the wherewithal to hang onto this trade, as the Euro has oversold, we feel that this could be a decent opportunity. If you do not have the ability to hang onto the trade, it’s possible that options might be the type of market you want to be involved in.
On the other hand, if we break down below the bottom of the hammer, that would be a very negative sign as we should head down to the 1.35 level. That level of course is massively supportive, and therefore we feel that the market probably will go too much lower. On the other hand, if we move higher as suggested above, we will more than likely find numerous buying opportunities on short-term charts as we pull back and find support of candles. Either way, we feel that the market is at a very important area, and therefore we should have a nice trading opportunity soon.