By: Christopher Lewis
EUR/USD fell for most of the session on Thursday as the fears of a Chinese slowdown continue to circulate around the various financial markets globally. The European manufacturing numbers came out light as well, and this certainly didn’t do much to instill confidence in the European Union in particular.
The pair did manage to bounce however, and by the end of the day had formed a hammer. The pair has been extraordinarily resilient over the weeks, and even with the bonds markets on the continent showing more signs of distress, the currency still can find a way to rise against the Dollar.
However, one would certainly have to question whether or not the action can continue. The US is starting to show signs of life economically speaking, while the Europeans are almost certainly going into a sizable recession. The ECB will more than likely have to cut rates and “print” Euros sooner or later, and the Fed may actually have to raise rates before the posted date. With this in mind, it makes sense that we would see a lower Euro.
1.3250 and 1.35
The 1.3250 level just above the current action is resistance, and the hammer from the Thursday session could suggest that we are trying to build up pressure to break back through it. The 1.35 level above that is the next real resistance, so if we were to break through, I expect the next fight to be there. However, 1.35 should hold in my opinion. Because of this, and some of the reasons mentioned above, I am still looking to sell this pair even though it looks as if I may have to wait.
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The breaking below of the bottom of the hammer from Thursday would be a sign of weakness as well, and I wouldn’t hesitate to sell that either. I like the idea of fading rallies going forward, and won’t be buying until we clear the 1.35 level on a daily close. If we can break this market down below the 1.30 level – we could see a much larger move south, perhaps to 1.25 or so.