The EUR/USD pair fell for much of the beginning of the week. However, the pair managed to bounce quite nicely in order to form a large hammer for the week. The pair is going to be the focus of the Forex world in the short term obviously, as the Greek elections loom large over the weekend. The move has been steady ahead of the weekend, and in a somewhat surprising fashion, has been positive.

The pair stopped for the week at the 38.2% Fibonacci level from the most recent fall, and this technical signal could give the bears a boost – but only if we get a gap down over the weekend. None the less, the hammer does suggest that the market is already coiled to bounce higher, and as a result it looks likely that we will see a move higher at this point. However, that move could be somewhat short-lived.

The bounce was fueled by a lot of short covering, and the rumors and statements of several central banks willing to get involved in the markets if the markets get unstable by the result of the Greek elections. Because of this, the hammer was formed, and it now looks as if the markets are ready for a “risk on” move. The elections can change things obviously, but the sense that there is a “global central bank” backstop in the financial markets will obviously have the traders out there willing to take on risk as they will feel that the downside will be very limited.

On outcome that could cause a bit of problems is a situation where there is no government elected in Greece over the weekend. This is possible as they may not be able to form a coalition with the others, and then we would have a third election. This would just drag on the uncertainty, and markets on the whole absolutely hate uncertainty.

This pair will be easy to trade – which ever direction the gap appears on Monday morning is the direction you want to be. With the price action, it looks as if the markets are betting on a move higher at this point.

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Originally posted here