The EUR/USD pair initially fell during the session on Tuesday, but as you can see bounced off of the 1.3350 level in order to form a hammer. This hammer suggests that the market is going to go higher, and more than likely head back towards the 1.35 handle. It is at the 1.35 handle that I think we will start to see significant resistance, based upon the fact that it had been significant support previously. If we do get that move, I intend on selling resistive candles in the general region in order to take advantage of the downtrend.
It should not be lost on you that the 1.33 handle is the bottom of the gap that had formed in the middle of September. That has been filled now, in the real question becomes whether or not we can break below it? If that happens, expect this pair to drift all the way back down to the 1.30 handle, something that I think it's very likely over the longer term.
This will become about the Federal Reserve yet again.
There was a shock in the financial markets last Thursday as the European Central Bank announced a rate cut that was completely unexpected. This of course has traders concerned about the viability of the European recovery, and it now appears that the European economy could be in serious trouble. After all, there has to be a reason why the central bank decided to cut rates, and because of that markets have to basically guess as to what the next move is.
After all, markets try to look out into the future about six months, and a rate cut from the ECB was certainly not part of the plan. In fact, I have talked to absolutely no one that had expected this to happen. With that being the case, the Euro should continue to weaken, but I don't necessarily expect any type of meltdown as the Federal Reserve is probably pretty far away from tapering off of quantitative easing themselves. Expect the 1.35. Offer resistance, while the 1.33 area offers support.
