The EUR/USD pair fell during the session again on Monday, but as it did on Friday, it bounced back above the 1.30 level. The sellers simply couldn’t overcome the support level, and as a result it formed a hammer. I don’t think that the trend is suddenly going to change, but it does looks like a bounce is coming. For that matter, I can see that the 1.0175 level could be a magnet for price, essentially creating more consolidation above the 1.30 level.
The pair has been selling off, mainly driven by the Italian elections and the lack of a new coalition in that country. This has a lot of people concerned whether or not Italy will be bothered to stick with austerity, and of course this causes disruptions in the markets. The lack of certainty in the markets have weighed upon the Euro, and there is also concern by the bulls that the European Central Bank will do something to ease monetary policy soon. With this in mind, there is a bit of a “black cloud” hanging over the common currency.
Back up, we need momentum!
I think that the “bounce” that we are about to see could simply be another attempt by the sellers to pick up more momentum. After all, the fall was relatively sharp, and the markets love the Euro on the whole. All things being equal, the market prefers to buy the Euro and sell the Dollar. However, if we are to reverse that move, the markets will need more momentum. By rising to the 1.3175 level, we may be able to pick up enough momentum to finally break the market down at the 1.30 handle.
The European Central Bank has a meeting and statement on Thursday, and of course the markets will be listening intently at that point. I think that if the ECB doesn’t cut rates or even suggest that it is thinking about it – we could see a snap back rally, which would push the pair higher than I expect. In other scenarios, I think this one falls sooner or later.