By: Christopher Lewis
EUR/USD had an interesting session on Tuesday as the pair initially fell on debt concerns. The pair started to fall significantly below the 1.30 handle, but managed to bounce in the later hours to form a hammer, one of the most bullish candlestick formations in the technical analysis world.
The 1.30 level is important of course, but it should be thought of as a “zone”. In fact, almost all support and resistance areas should be thought of as such, as there are many large orders in the general vicinity. The EUR/USD is no different than any other in that aspect.
The pair is currently trying to weigh whether or not the European Union is going into recession for 2012. While a large portion of traders seemed to have thought so initially, stronger than expected PMI numbers on Tuesday have the community perhaps rethinking this scenario. Because of this, the pair got a bounce and is re-challenging the resistance level. As I have stated several times, I am not as enthused by this pair as I believe the problems in Europe are of a structural nature anyway.
No Man’s Land
The pair currently finds itself in between the 1.30 and 1.31 handles. As I see it, the resistance area goes to the 1.31 handle (at least) and as a result can’t be bought at the moment. Yes, it does show real conviction to the upside with the hammer formed on Tuesday, but the level isn’t quite right. In fact, the hammer could quickly become a “hanging man” if the market breaks below the Tuesday lows – and that is a very bearish signal indeed.
Because of this, I have a couple of levels I am watching in which to get involved in this pair. Until then, it is highly likely that the action will mainly be noise, and that is something I try to avoid. The breaking of the low on Tuesday has me selling this pair and aiming for the lows that we recent saw again. On the long side, I want to see 1.3150 get hit to make sure I am clear of the zone, and I would aim for 1.33 for my first target. I must be honest though, I am much more comfortable shorting this pair at the moment.
