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The EUR/USD pair initially fell during the session on Tuesday as the Federal Reserve Chairman did not explicitly say anything about quantitative easing. However, by the end of the trading day we have seen a nice bounce in order to form a hammer which of course is notable since it's the second one in a row.
Double hammers don't happen all the time, and as such we think this is a very bullish sign as the pair looks to be forming some type of base. A break above the 1.2350 level probably has this pair looking for the 1.24 to the 1.25 level to test resistance again. In our opinion, it is safer to wait until we get to those higher levels from which to sell. We don't like selling here, as there far too many long wicks to contend with at this point in time, and we believe that the Euro has been sold quite abundantly, and there should be a let up shortly.
However, it is foolish to think that the European Union has corrected anything, and this may simply be a reevaluation of the US dollar. But when there are concerns out there, the US dollar will suddenly gain strength, regardless of what is going on in the US economy. With this being said, we think that the 1.25 level should be extremely resistive, and would sell any week candle on most time frames at that area. If we can get below the 1.2150 level, we think this pair could go down to the 1.20 level.
Don't forget, there was a bearish flag that we had been monitoring that broke down recently. The pole of the flag measured 1000 Slower. This suggested that we may be visiting the 1.15 level before was all said and done, and although this sounds like a strong move - with all the problems in Europe, it's not really that big of a stretch. We are selling rallies at this point, but need to see a week daily candle. If you happen to be short of this pair already, now would be the time to tighten your stops.