By: Christopher Lewis
The EUR/USD pair has been trying to digest the effects of a Greek default for several months now, and on Friday, it finally happened. Oddly enough, there was very little reaction. Perhaps this is because the market had been preparing for it for so long that all of the bad news was priced in. Of course, there are many other factors in the European Union and its problems at the moment, so although we have seen a flat market, there are many other things that could possibly move the markets in the future.
The lack of reaction certainly will have been something that caught a lot of newer traders on the back foot, and this will more than likely offer them up as profits for the larger firms. The fact that the market fell to the 1.31 level before the default probably will have had a supportive effect on the news as well.
From 1.31 down to 1.29
The 1.31 level mentioned above is the start of significant support, and it looks as if it goes all the way down to the 1.29 handle. While a 200 pip zone is a large area to worry about, it really isn’t that unprecedented as the markets will often have larger than normal support and resistance levels at areas that are of major importance. This is the question that we are trying to answer right now: Is the Euro strong enough fundamentally to be over the 1.30 mark? There are a lot of reasons why it wouldn’t be, and I believe that eventually it will be proven to be so. However, in the mean time we need to work with the charts we are given.
The hammer from the session on Monday will more than likely signal a move to the upside that looks more like consolidation than a rally. Going forward, it looks as if 1.35 will be the top of this market, and the 1.31 – 1.29 area will be the bottom. 1.3250 also has a real chance at being resistive as well. With this in mind, I feel that selling rallies on signs of weakness is the way to go forward.