The EUR/USD pair initially fell during the week but found enough support near the 1.17 level to turn around and form a hammer. Because of this, the market looks as if it is going to try to continue to the upside, perhaps reaching towards the 1.20 level. That’s an area that has a significant amount of psychological importance, and I think it makes a juicy target for traders. Alternately, if we break down below the 1.17 level, the market probably goes down to the 1.15 handle. At that area, I would expect to see a significant amount of support, and I do believe that the upside will continue to be the way going forward but the fact that we have a shooting star followed by a hammer tells me that more than likely in the short term we will see choppiness and essentially sideways action. That makes sense, we are in the height of vacation season for most traders around the world, and that of course affects the overall liquidity of the market.
In general, I believe in buying dips in a market that should continue to favor the EUR over the longer term, but the impulsivity of this move has been stretched a bit, so some sideways trading would make quite a bit of sense, so that the market can build up the necessary momentum to continue to go to the upside. If we can break above the 1.20 level above, the market should continue to go much higher. If we broke down below the 1.15 handle, it’s likely that the market will drop significantly. I don’t think that’s going to happen, but it of course is always a possibility as the alternate scenario to the bullish break out that we see.