The EUR/USD pair fell precipitously during the Friday session after the nonfarm payroll numbers out of the United States came in much stronger than expected. It appears that the market was ready to selloff anyways, especially when you look at the Wednesday shooting star that failed at the 1.30 level. I essentially think that this was a reason for the market the selloff on Friday, as it just "wanted to."
You can see on the chart that I have a purple line at the 1.28 level. This level for me is the last vestiges of support, and as such I think that a close below that area would be significantly bearish enough for me to not only become short of this pair which I already am, but become aggressively short.
As you can see, there was an uptrend line from the early part of September that was broken on Friday. The choppiness that we have seen once we had the 1.30 level would've been your first clue that something wasn't quite right, and as you know I have been saying that I just wasn't comfortable going long in this market lately.
Headline risks
With the US Presidential election on Tuesday, there is a certain amount of headline risk out there for anything involving the US dollar. If Gov. Romney ends up winning the election, this should be positive for the US dollar, as he has already shown a proclivity for a strong Dollar policy. He has already said he wouldn’t bring back Bernanke, and this of course could lead to a tighter monetary policy out of the Federal Reserve.
Well there are a lot of different things that could happen between intellection and actual implementation of these plans; the market tries to predict ahead of time what's going to happen. So while the Chairman is supposed to be in charge of the Federal Reserve until the end of 2013, the market will try to get ahead of any moves by the next leader. Also, it should be noted that the Chairman has suggested that early retirement wasn't necessarily out of the question. Because of this, we could see an extended run lower in this pair. Regardless, I am selling aggressively if we get below 1.28 on a daily close.