The EUR/USD pair fell during the session on Monday, but as you can see got a significant bounce, at least in terms of the daily range, in order to form something that looks a little bit like a hammer. Just above there, I have marked on the chart a downtrend line from the weekly timeframe. In fact, that is the top of what looks to be a descending triangle forming in this market, so needless to say a move above that would be very bullish indeed.
Going forward, it will be interesting to see what happens over the next couple of sessions, because quite frankly I feel this is where a serious decision will be made. If we can close on the daily charts above the downtrend line, we could see a significant move higher. On the other hand, if we break the bottom of this hammer, I think that we will start working our way towards the 1.28 level again.
This is all about the Federal Reserve, and whatever it is they think they're doing.
The biggest problem with this pair right now is the Federal Reserve. They keep going back and forth as to what they are going to do, and quite frankly every time a Federal Reserve member speaks, it throws the market around in a violent temper tantrum simply because people are trying to gauge whether or not September will be the month that the Federal Reserve begins to taper off of quantitative easing.
If they do, of course that will be US dollar positive. On the other hand, if they don't, the US dollar will get absolutely pummeled, and the Euro will be a beneficiary. In the meantime, expect a lot of drama and choppiness, but quite frankly after the big significant green candle a couple of weeks ago, this market has not been impressive.
Again, on a daily close above the downtrend line, I would have to start buying. On the other hand, on a break of the bottom of the range for Monday, I am a seller