EUR/USD is the absolute center of attention for most Forex traders at the moment. With the seemingly never ending drama in the EU, there is almost always going to be a headline to react to. The truth is that if most people were honest, they would admit that the situation in Europe is just about beyond repair, and even if the politicians somehow figure things out – the EU is going to be struggling for a while.
The “hopium” trade in this market has been pretty remarkable to be honest. It seemed like forever before 1.30 finally gave way in May, and there were many people asking if that level was ever going to collapse. Now that we have seen it give way, the 1.25 level was bound to be hit, and this is where we find the market now.
The formation for the Monday candle was a hammer, and this shouldn’t really be a surprise as there is almost always a reaction to a large round number like 1.25 – and especially on the “500” pip intervals. The market loves round numbers, and the Monday reaction was a perfect example of that in action.
Flag and 1.25
Much like my analysis of EUR/GBP, in this pair we find the market with a potential bearish flag, and a massive round number just below it. This is why I think the 1.25 ultimately will be a big one and having said this – I think it is giving way at the moment. The flag’s pole measures 1,000 pips and this gives us a potential target on the downside of 1.15 or so.
Yes, I know this sounds a bit farfetched, but don’t forget that this is a target in pips, not time. Giving up a thousand pips over the course of 18 months isn’t that outrageous. Also, if the European Union is going to be in a slow growth mode for a few years – this really isn’t as outrageous as it sounds. I am getting at the fact that we may have a long way to go to the downside over time is all.
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With the candle on Monday, a break of the bottom would be a seriously bad sign for the bulls. Granted, the top of the hammer is a buy signal on its own right, but with the trend being so obviously down, and the EU having a meeting at the end of the week – I am ignoring buy signals at the moment.