For awhile I've been trying to figure this one out. This particular pair is pretty complex, because there are so many factors pulling and pushing it. I guess you can say that with any pair but this one is very noticable to me since I've been following it pretty much every day.
I think the first indication of a pullback of the Euro I had was the shift in the USD index.
As you can see in the chart above it's on the upside indicating that more US dollars are being bought by big investors. The reason why? Non-farm payroll results tomorrow (Friday). In my opinion, since the markets stabilize after the recession you see more and more investments brought back to the US. Kind of the way it 'used to be'. A tricky market opinion I know and I know not all investors will agree with me. In fact I received several emails mentioning that I was more leaning towards a stronger dollar and that most trades I made were biased against every currency but the USD.
Let me make that clear, I could care less what currency reigns over the other. As long as at makes me money I'm happy. Let's say if all signs point towards the EUR heading up to $2, believe me, I'll be the first one to buy! The thing is that the currency pair is so overvalued at the moment that sooner then later (very soon) it will pull back dramatically resulting in a huge money making opportunity! In fact, I see the EUR hovering around 1.25 in the beginning of next year. Just like it did last year around that time. Let's take a look where we stand today right now.
My brokers SSI (Speculative Sentiment Index) indicates 70% of the traders are currently short this pair. I happen to agree with them! No, not because I favor the USD, like I said before, I could care less. But because of the money making opportunity. I see this pair below 1.50 tomorrow and in the upcoming week. my SL is @ 1.4900.. well that's over a 100 pips from now.