Cross-Eyeing: Fib Power Play on EUR/JPY – Trade Update

Trade Cancelled: 2011-05-12 03:00

Because the euro zone’s debt problems seem to be surfacing again, I was anticipating a big drop in EUR/JPY… but I didn’t think it would happen so soon!

EUR/JPY 4-hour chart

The euro jumped out of the frying pan and into the fire yesterday after the market spotlight focused on the euro zone again. Apparently, Greek demonstrators took to the streets to oppose the government’s plans to cut costs. To make matters worse, S&P says Portugal’s banking system may need even more funding. Ayayay! If that doesn’t shoot down investor confidence in the euro zone, I don’t know what will!

You know that feeling you get when you miss the bus by just a few seconds? That’s exactly how I feel after missing out on that big move! The pair turned around just a few pips below my strike zone and bottomed out at around 115.00, the area I was eyeing as my profit target.

Since price isn’t exactly in an interesting place right now, I’m bringing down my alert level on EUR/JPY a notch. However, I’m maintaining my bearish bias on the euro (for obvious reasons) so I’ll still be looking for ways to short it.

If you have any suggestions on how to trade the euro, hit me up with some comments below or on Facebook and Twitter. Peace out!

Trade Idea: 2011-05-11 04:42

EUR/JPY 4-hour chart

After getting its socks rocked by a wave of risk aversion last week, EUR/JPY has retraced a bit after testing a key area of interest around the 115.00 handle. The question is, does this recent move up signal that buyers are gearing up to buy the euro again? Or was last week’s move overextended and are traders getting ready to re-establish their short euro positions?

I’m not too surprised that we saw strong support at the 115.00 level. After all, it has been a major area of interest in the past (just look at those weekly charts!). What surprises me though, is how traders are still bullish on the euro.

With Greece getting downgraded and rumors that it may leave the euro zone or at the very least have to restructure its debt, I’m finding more and more reason to avoid going long the euro. I’m thinking that sovereign debt fears will stay around and stink up the markets for the meantime.

In any case, I think this recent up move could provide the retracement I need to short this pair. Looking at the 4-hour chart, I see that the pair has formed a descending channel after topping out just above the 123.00 handle last month.

I’ve popped on the Fibonacci tool, and I think the 38.2% and 61.8% Fib levels could be good areas to short. The 38.2% level lines up with the top WATR (117.50) as well as the middle of the channel, while the 61.8% level is right smack at the top of the channel.

For now, I’m gonna be a little patient and see how price reacts to the lower Fib level first. If I get some nice, sexy reversal candlesticks, then I’ll probably go short ½ position. If prices shoots up even higher, I’ll have the opportunity to short somewhere below the 61.8%, giving me a better average price.