By: Christopher Lewis
The EUR/USD pair has been somewhat “stuck” recently as we have seen a confinement of price between the 1.30 area and the 1.35 level. The levels aren’t perfect, and this is normally the case when we get these important levels. When looking at the pair on the longer-term charts, we can see that 1.30 (or so) is a very important area of both support and resistance historically. When you get these large and important areas, it isn’t that uncommon to see the “level” actually be more of a “range”. In the case of 1.30, I am actually seeing the supportive zone as being 200 pips “thick”, and stretching from 1.29 to roughly 1.31 as supportive.
While this may seem somewhat counterintuitive to many newer traders, they tend to forget that the 200 pip zone isn’t that big of a deal in the big scheme of things. Granted, it looks rather impressive and imposing on an hourly chart, but on a weekly – it’s only slightly more noticeable than the more “normal sized” zones. However, there are some major differences in with these areas in the way they are treated.
Large areas make large decisions.
The markets can often be broken down to just a few simple areas of importance. True, there are always going to be several support and resistance areas, but when you look at the overall picture it isn’t rare to see something like 4 support and resistance areas that are truly important. Don’t believe me? Look at a monthly chart and start drawing lines. (Take a look at 1.30 in the USD/CAD as an example.)
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The 1.30 level may just be one of these areas. The fact that it is 200 pips would certainly lend it to be true in general, and as such I suspect this 1.30 level is much more important than most of you understand at the moment. In fact, it is a breaking down below that level which for me would be a major decision by the traders around the world. If we get below the bottom, (Remember, this is actually 1.29) we could see a real acceleration to the downside in this pair.
Until then, I believe that this market is going to bounce around between 1.30 and 1.35 or so. However, I will admit that the pair looks somewhat bearish overall, and with the plethora of problems in Europe, I have no interest in buying this pair. I will sell rallies as the fade a bit, and will certainly sell hand over fist this market if we close below the 1.29 level on a daily close.