The EUR/USD pair fell during the session on Monday, but as you can see bounced significantly in order to form a hammer. What I find interesting about this hammer is that it's based on roughly the 50 day exponential moving average, and the 1.31 handle. That being said, I cannot help but think a lot of people saw this currency pair as a value during the session, and simply decided to step in.
The biggest problem with a move like this is that typically people are entering it for the bounce. After all, look at the way that the Euro had sold off over the last three sessions before, and you can see that the move has been rather swift. Quite often, you will see a significant bounce on a move like that, and I'm afraid that this is the line of thinking that the buyers are using.
European stock indices
Many of you probably don't follow the European stock markets. However, I do and I recognize a general pattern: extreme weakness. For those of you who don't know, the FTSE in London, the DAX in Germany, the CAC in Paris, and the MIB in Milan all look horrible. In fact, a couple of these markets have broken major support levels of the last 24 to 48 hours.
Because of this, I feel that money is leaving Europe on the whole, and coming back to America where it started. With that being the case, I don't see any bounce in this pair lasting that long. However, I do fully recognize the benefit of trading a bounce like this, it would be perfectly fine buying the Euro above the top of the Monday range.
However, I would be very hesitant to hold onto this trade above the 1.33 handle. On the other hand, I can't necessarily feel good about shorting this pair, because it is simply fallen too far, too fast. On top of that, I can make an argument for support all the way down to the 1.30 level in the short term, and possibly as low as 1.28 before it's all said and done. In other words, expect choppy conditions below, or a nice selling opportunity above.
