By: Christopher Lewis
The EUR/USD continued its rise in value on Friday as traders anticipated a possible workaround involving the creditors and Greek government. Also, the general “risk on” attitude came back into the markets, and this became a bit of an environment that favored a bounce in this very obviously oversold pair.
The pair has been a volatile one lately, as the headlines are pushing it back and forth. In a sense, the pattern has been to fall sharply for a handful of days, and then to bounce back for a few in a seemingly never ending pattern of choppiness with a downward bias. However looking at the overall picture, it seems the market is trying to figure out how to price the inevitable problems going forward in the EU.
The pessimists, me included, think that the value for the Euro is much, much lower over time. The problem in the EU seems to be of a structural nature, and this is why I am so bearish of the Euro overall. However, the markets have spoken for the time being, and it seems that the bulls will continue to fight. If you look at the way the currency markets tend to operate, they seem to be set up for the Euro to gain overall for the long run. By this I mean that even in the face of extremely bad news, the currency will always attract bidders.
Slamming into 1.30
The charts saw the pair slam into the 1.30 resistance “zone” during the last session, and then promptly fell. However, the Americans sold off the Dollar, and this has formed a hammer. The candle is sitting just below 1.30, and as a result gives one of two distinct possibilities going forward from which I will base my next trade.
.png "EUR/USD Daily 1/23/12")
If we break below the hammer low, I will short this pair as it shows a “hanging man” has been printed for the Friday session. This can be a very bearish signal going forward. On the other hand, the hammer can show strength and support going forward if we can manage to break above the top of the range, and clear the 1.30 level as well. (1.30 is close enough that I would like both to be cleared before I got too excited.)