The EUR/USD pair initially rallied during the course of the day on Thursday, testing the 1.28 resistance barrier. We eventually sold off from there, and then turned back around to form a very negative looking candle. Because of this, we believe that a break below the bottom of the range for the Thursday session will send this market looking for the 1.25 handle. The move below would be rather negative and choppy though, so you’re going to have to be patient if you are involved in it. The 1.25 level is of course a large, round, psychologically significant number, so course there is going to be some remnants of support there no matter what happens. Ultimately though, it’s very likely that we are simply trying to build up enough momentum to break down.
When you look at the US Dollar Index, you can see that we have formed a very supportive candle for the session as well, and as the two markets tend to move inversely, it appears of the US dollar and it strength should continue to move higher. With that, there’s almost no other way to play this market but to sell rallies as they appear, and most certainly get aggressive to the downside if we can close below the 1.25 handle.
Ultimately, we think that the resistance above at the 1.28 handle runs all the way to the 1.30 level, so there really isn’t any way to buy this pair until we get above the 1.30 handle at the moment, and that certainly doesn’t look likely to happen anytime soon. We believe that the market will continue to go lower, and if we can get below the 1.25 handle, we would go for a complete “round-trip” of the move higher, sending this market looking for an area close to the 1.20 level, a huge move indeed. Because of that, this could be a nice trade if you are patient enough to take your time and placing your money at risk. Also, you’re going to have to learn to hang onto profits, something that oddly enough, a lot of traders have trouble doing.
