The EUR/USD pair fell hard during a large part of the session on Thursday, but as you can see slammed into the 1.30 level in order to find support. That area pushed the market, forming a hammer and suggests that the Euro is still going to continue to appreciate in the short term at least. However, I believe that the Euro and the European region in general has its own issues. Nonetheless, I cannot ignore the fact that the short-term signal certainly says that we are going higher.
The red line on the chart is a weekly trend line, and I think that the sellers will step back in at that level. Right now, I suspect that we will intersect it somewhere near the 1.33 handle, and it will be only a matter time before some type of bad news that will push the market back down.
On the other hand, the 1.30 level being broken to the downside would be drastically bad for this market. If we managed to break down below that level, we could very easily find ourselves heading back towards the 1.28 handle again. This market tends to be choppy overall, so it would make sense to see continued choppiness going forward.
Hammer shows strength, but it also shows weakness if broken to the bottom.
If the hammer gets broken to the downside, I suspect that not only the 1.28 level gets tested, but quite frankly we could see a break down altogether. I think that it will have to be accompanied by some type of shock to the system, more than likely coming from Europe. At this point in time, it appears that the Federal Reserve is probably going to be a bit cautious about tapering quantitative easing, and the markets certainly are trying to price that reality in. However, there are a lot of things that can happen between now and September, and as a result we will more than likely see a lot of back-and-forth in this pair yet again. This market has been a pain to deal with the last two years, and I see nothing on the chart that suggests that the attitude of this market is about to change.