The EUR/USD pair initially fell during the session on Tuesday, but as you can see found enough support below the 1.39 level to turn things back around and form a nice-looking hammer. This hammer of course suggests that we are going to have buyers stepping in this market when it pulls back. In fact, this is the second hammer in a row, so I think that it comes down to a matter of buyers trying to break through the resistance above. There is a somewhat strong downtrend line from the monthly timeframe that should continue to fight the buyers at this point.
However, I believe that based upon the way that we have fought here, sooner or later the buyers are going to take off and smash through the resistance barrier. When they do, I believe that this market goes all the way to the 1.50 level, which is roughly 1000 pips. The 1.40 level would be more than enough to convince me that we have broken out, and I believe at that point in time you could also buying this market every time it dips, as long as we see a little bit of support on even a low timeframe.
European Central Bank surprises, and now the interest-rate differential remains.
The ECB surprised a lot of people in the markets by suggesting that they would not expand monetary policy, and as a result the interest-rate differential between the two currencies should remain roughly the same. Yes, I recognize that the Federal Reserve is currently tapering off of quantitative easing, which of course will bring up the interest rates in the United States, but quite frankly I believe that a lot of the market participants had anticipated the ECB lowering rates, or at least doing something to trying to do it through the bond markets. Since the two central banks aren’t necessarily diverging, this should keep the interest-rate differential roughly the same. With that, I believe that the Euro will eventually get a bid, and when it does it could be a really significant break out to the upside.
