The EUR/USD pair fell below the 1.33 level during the session on Wednesday, but found enough buying below that level in order to break back above that area. With that being the case, the market formed a hammer and it appears that the 1.33 level is not going to try and act as support going forward. If that's the case, I fully expect see this market try to reach the 1.34 handle, and perhaps even the downtrend line that I have drawn on the chart.
The downtrend line is formed off of the weekly chart, and is relatively significant. With that being the case, I don't think we will break above that weekly trend line, simply because the European Union has plenty of problems in it at the moment, and there is an FMO see meeting coming fairly soon. If the Federal Reserve clarifies whether or not it anywhere near tapering off of easy monetary policy, and suggests that it will be a long time before that happens - expect this pair to fall apart again. Also, one has to be very concerned about the state of the European stock markets. Right now, the MIB, IBEX, FTSE, and CAC all look very vulnerable.
Short-term trade only
I look at this move is a short-term trade at best. In fact, this market has been so volatile that I think there is no such thing other than a short-term trade in the Euro. This is because there is so much uncertainty out there, and it is summertime. The summer typically has a lot less volume, and that might be part of what we're seeing in these massive swings, especially over in the Yen related markets. With that being the case, you have to be careful when trying onto wager too much on a particular trade as the volatility can be deadly.
On the other hand, if we managed to break below the bottom of the hammer that formed for the session on Wednesday, this would be what is known as a "hanging man.” When that happens, it is a very bearish sign and I think would lead us back down to the 1.30 level.
