The EUR/USD pair fell during the Friday session, and as a result it is most of the day below the 1.31 level. However, this bounce that we saw late in the day formed a hammer above the 1.31 level that looks like a market that wants to breakout to the upside. This could be a result of the Federal Reserve and its massive quantitative easing programs. With that being the case, it appears that Euro is about to make a move to the upside. If we managed to break the highs from the Thursday session, which is essentially the same thing as saying if we break last week’s highs, we think this market will go searching for the 1.33 handle.
If you break the bottom of the hammer from the Friday session, we think that the market simply reenters the previous consolidation zone. If that’s the case, you go down to the 1.28 level before you find the “floor” in this zone.
Looking at the markets overall, there is certainly a massive headline risk out of Europe, and as a result it’s only going to take one bad bond auction, or perhaps message from a politician in that area to really get the markets freaking out again. That being the case, we would think that keeping a tight stop loss on any long position in this market would probably be the wise thing to do. This pair has been extraordinarily volatile over the last four years, even while it’s been trending.
The banks in Europe are still an absolute mess, so any move higher we feel is simply a short-term bullish action, and not some type of longer-term trend. We do have the warmer summer months coming, and between now and then we could see quite a bit of choppiness. Once we get to that point time obviously we will start to slow down as far as range of the market. At this moment time however, we think that the market will move 100 pips or so in either direction once we break the range for the Friday candle.
Written by FX Empire