The EUR/USD pair pulled back during the session on Wednesday, but as you can see bounced enough to form a hammer. This hammer sits just underneath the descending trend line from the top of the descending triangle, and as a result I think this market will more than likely try to breakout above that. If it does, that would be a very bullish sign for the Euro obviously. However, if we managed to break down below the 1.32 handle, I think that this market could really start to break apart and head back down towards the 1.28 handle over the longer term.
Obviously, it's all about the Federal Reserve and whether or not they decide to taper off of quantitative easing. If they do, that would strengthen the dollar of course drive this pair much lower. It's difficult to tell exactly what's going on right now though, liquidity just isn't there and as a result it's likely that the market will struggle to define itself going forward.
Summertime is for beaches, not trading.
Most large firms and most large traders are simply cutting back their position size at this point in time, simply because larger traders are not at their desks. Because of this, it's difficult to really Garner any real information for the market, and it must be factored in that the markets will certainly be paying attention to the Federal Reserve and what it does in the month of September. Between now and then, it's basically just guesswork. The guesswork is whether or not the US dollar will skyrocket in value due to tapering, or if it won't. I do not believe that all of that is factored into the markets of the moment, and as a result I think there is a surprise in September.
That being said I think that we are at a pretty serious inflection point in the Euro, as this market will more than likely make some serious decisions in the short term. It comes down to whether or not the Federal Reserve makes his intentions clear. Until then, expect a lot of volatility going forward.