The EUR/USD pair fell during the session on Monday as the European Central Bank had its meeting. The Chairman Mario Draghi spoke of the high value of the Euro hurting the European economy. A lot of traders out there did not expect to hear him say anything, and as a result a catalog of the “weak hands” nervous in the marketplace. After all, the Europeans really haven't talked about an expensive Euro until now.
A lot of people look at this as the ECB's entrance into the currency war. The Japanese are definitely in it already, as is the Federal Reserve. Now we have to worry about easing policies out of Europe as well. However, they are the last ones in the game, and certainly are well behind the curve. Because of this, I believe that a lot of the selloff was a bit of a knee-jerk reaction that was overdone.
1.34
For a while now I have suggested that the 1.35 level was a significant area of support. I also have mentioned that the 1.34 level is the "bottom" of the "zone" that is holding the pair up. We did managed appears that level, but you can see there is quite a bit of support just below that from the middle of January. For myself, I believe that back cluster will be a bit of a floor for this market in the near-term.
It really comes down to whether or not the markets believe that the Europeans would do something to weaken the Euro. The truth of the matter is that the Federal Reserve is well ahead of them, and this should end up being a buying opportunity in the end. The real question now becomes whether or not that buying opportunity comes today, or a few days down the road.
I am essentially looking for some type of supportive candle at the current area in order to start buying again. A hammer for the Friday session would be perfect, but we rarely get the perfect setup. Because of this, I do believe that buying can be done, you have to be willing to take the sideways and nasty volatility they could come with it. If you are little bit more conservative, you may want to consider waiting until a daily close that shows bullishness.