The EUR/USD pair formed a shooting star on Monday as the pair could not really take advantage of a break above the 1.31 level. The pair has been absolutely parabolic recently, and it would make sense to see a pullback. I think that 1.28 is a reasonable place to look for support going forward, and I think that we will eventually retest that level.
This pair is been very difficult to trade over the course of the last several months, as it simply seems to react to one rumor or drama after another. Is because of this that a lot of my friends is simply stopped trading. The recent move has been ridiculously sharp, and now that the Federal Reserve has chimed then, it makes sense that the dollar would lose value.
We did get above the 1.30 level, but there is quite a bit of noise until we get to 1.32 or so. The candle for the Monday session suggest lower prices, and a break below the bottom of it could be used to trade this pair from the short side if you are willing to take the risk.
Retracements are possible
I do believe that this pair will pull back; it simply far too parabolic and obviously the euro shouldn't be the strong. A bit of overreaction and short covering rally has exacerbated this entire problem, and I think that eventually the market will begin to focus on Europe again. Once they do, the Euro will suffer.
There is talk of several financial ministers around the European Union disagreeing again about a banking fiscal union. Because of this, we could see a sudden selloff in the Euro. This would make sense as the two currencies are so out of whack right now that it's probably time to turn around and start selling this pair yet again. This is the most volatile I've ever seen this pair, and as such we simply can only play a bit of a "revert to the mean" type of strategy as it is certainly overbought. Whether or not we can hang under the short trade - that is something else.