The EUR/USD pair fell during most of the session on Wednesday, but did get a supportive bounce at the end in order to form a nice-looking hammer. This hammer was predicated upon a bounce from the 200 simple moving average on the daily chart, as well as the 1.27 to 1.28 support and resistance zone. This area is now support, obviously as we have bounced from it.
With this confluence of events, even though I am very negative of the Euro long term, I have to admit that this looks like a market that ready to bounce. Because of this, I believe that we are reentering the previous consolidation area between the 1.28 level and the 1.3150 handle. With this in mind, there is a very good chance that we will continue higher, and I would consider going long if we break the top of the Wednesday hammer.
Headline risk and a major holiday
Looking at the short-term, there is the Thanksgiving holiday to worry about today, as well as the Friday session that will be light volume as well. Because of this, the currency markets may be a bit jittery over the next 48 hours, but the truth signal will be how we react on Monday. Not only would this give us the chance to deal with the major North American holiday, but the weekend and all the potential headline risks out there.
Looking at this chart though, I do have to admit that a break of the highs from the Wednesday session does in fact signal buying. If that happens, be long it is certainly the direction I would prefer to be in if I had be in this market.
Ironically, but one thing that could save the Dollar is the United States falling off of the so-called “fiscal cliff.” There's a good chance that large funds woodpile into US Treasuries if that happens, and because of that we would get a run to the US dollar. Ironically, the other part of the sequestration suggests that there will be less Dollars in the marketplace as the government spends less. So not only do we have a run to treasuries, but we also have a supply and demand in balance. However, this will not come into play over the next couple of weeks. This fact gives a real chance of this market heading back towards the top of the consolidation area as it appears we have plenty of time to do so.