The EUR/USD pair fell during most of the session on Friday, but as you can see the market found quite a bit of support below. The 1.33 handle has yet again served as support, as it has over the last couple of sessions. The interesting thing about this pair is the fact that we have three hammers in a row, at the top of a move higher. This is typically a very significant sign, and it shows of the market is truly trying to breakout to the upside against some relatively strong force.
The red line on this chart is from the weekly timeframe, and represents a downtrend line that should provide a bit of resistance to the Euro. We're just underneath that right now, and I believe that the hammer suggests that the market is trying to build up enough momentum to breakout. At this moment time though, I suspect that this chart will be served well by the trend line, as well as the 1.35 handle above.
All things being equal, it appears to me that the Euro is trying to appreciate more. However, we have been stuck in this cycle for what seems like millennia now, as it is simply a matter of waiting for the next negative headline to come out of the European Union to start selling the currency again. It's been a while, so I have to think that we're just about due for something really bad to come out of Europe.
Fading the rally on signs of weakness
I know this sounds like a bit of a copout, but I truly plan on fading this rally on signs of weakness near the downtrend line. At this moment time, I certainly see the upside potential in the short run, and if I were trading very short term charts would be very tempted by it. On the other hand though, I can recognize the fact that the market has come too far too quick, and that we are at a perfect place to take a breather. Because of this, any buying opportunities that I see will more than likely be for something along the lines of 50 pips. On the other hand though, if we managed to break down below the bottom of all three hammers, that would turn them into "hanging man" formations, and would be very, very bearish.
