EUR/USD had a funky kind of day on Tuesday as the markets continue to try and figure out a catalyst for the next move. The initial move was to the downside, probably in reaction to the comments made by a BHP Billiton exec in Australia about how the Chinese demand for hard commodities was going soft. However, the demand is still strong overall, simply slowing. Because of this, a lot of the “risk trades” suffered during the session.
The move was more than likely a bit overdone, and the resulting hammer in this market could be a great visual representation of this. The hammer suggests that perhaps there is a bit of a fight left in the bulls, and as the pair is just below a serious resistance level, this could suggest a fight to come.
The Euro is enjoying a bit of a breather after the drama involving Greece, and as the bailout has been approved, it is acting like all is well. However, over the longer term, the Europeans have a lot of things to worry about in the future. Portugal is another Greece waiting to happen after all.
Hammer or “Hanging Man?”
The candle for the session on Tuesday looks like a hammer that is trying to burst through the 1.3250 resistance level, and judging by the way the Euro seems to defy gravity at times, this wouldn’t surprise me. However, if we get a break through the bottom of the candle – it becomes a very bearish signal as it would turn the candle into a “hanging man”. Because of this, it sets up a reasonably simple trade in my eyes.
.png "EUR/USD Daily 3/21/12")
The breaking lower of this pair through the bottom of the hammer has me short and selling to reach 1.30 and possibly lower. If the market breaks a bit higher and above the 1.3250 level, I will more than likely wait to see what happens at 1.35, as there are simply far too many reasons not to own the Euro at this point in time. The closing of the market above 1.35 on a daily chart will have me rethinking this pair altogether.