The EUR/USD pair broke down during the session on Friday, dipping below the 1.15 level, which of course is a large, round, psychologically significant number. That is a bit of surprise to me, but now we have certainly broke down below what was once thought to be massive support in the form of the 1.18 level, which even shows itself as being important on the monthly timeframe. However, as we crashed into the 1.15 level, we managed to find a bit of support and form a nice-looking hammer. This makes sense to me of course because of the fact that it is such a large number, but ultimately the question then remains whether or not this is a significant bounce waiting to happen?
Of course, anything is possible. However I think what this is going to turn into is an opportunity to sell the bounce somewhere closer towards the 1.18 handle. After all, we have broken down below significant support, which quite often will get retested as resistance. I think that’s what we are about to see. Because of that, I have no interest in buying this pair but would rather sell closer to the aforementioned 1.18 handle on a resistant candle.
Oversold
I believe that this market is oversold at the moment, so the bounce makes sense on several levels. With that being said, I do like selling rallies but I do recognize that we could become even more oversold, meaning that we could continue to go lower. If we break the bottom of the hammer from the Friday session that of course is a very negative sign, and should send this market much lower. I have no interest in buying, unless of course we get above the 1.20 level which of course would be a very massive move to the upside, and would show real strength. With that being the case, the market could go as high as the 1.2350 level next, and then possibly the 1.25 handle. However, the matter what we do expect a lot of volatility and you have to still favor the downside at this point.
