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Volatility has returned to EUR/USD: after a series of falls accompanied by “dead cat bounces”, the pair seems to have made a final dip that was followed by a quick reversal and a bounce above the previous levels.

When we zoom out to the daily chart, a textbook hammer pattern is forming. This is a bullish sign and could mark the end of the downfall that the pair has  suffered during the last few weeks and that has sent it to levels last seen in November 2013.

Here is the chart:

EURUSD hammer pattern July 24 2014 forming on the daily chart following PMIs

The last move began with an early sell-off of the pair in European trading ahead of  important purchasing managers’ indices from Germany and France, as well as the quarterly level of Spanish unemployment.

When most of these figures surprised  to the upside,  the bounce was swift. 1.3480 serves as initial, minor resistance, with the round number of 1.35 already working in a much stronger manner.

For more levels, events and analysis, see the EURUSD forecast.

For  reference, here is the  definition of a hammer pattern from Wikipedia:

A  hammer  is a type of  bullish reversal  candlestick pattern, made up of just one candle, found in price charts of financial  assets. The candle looks like a hammer, as it has a long lower  wick  and a short body at the top of the candlestick with little or no upper wick. In order for a candle to be a valid hammer most traders say the lower wick must be two times greater than the size of the body portion of the candle, and the body of the candle must be at the upper end of the trading range.