Feb. 28 – Mar. 4, 2011 Weekly Winner: EUR/JPY!

Time to get over that hangover people, it’s Monday! And y’all know what that means – it’s time for Cyclopip’s Weekly Winner!

Sound the alarms because GBP/JPY’s three-week reign is over! Last week belonged to EUR/JPY, which presented a solid setup early on Monday.

If this is your first time reading my Weekly Winner, you might wanna check out my introductory post first to help familiarize yourself with my trading framework.

February 28 to March 4, 2011: EUR/JPY Price Action Review

EUR/JPY chart

Now, if you guys weren’t too caught up filling up your March Madness brackets, then you’d remember that I actually had a long EUR/JPY setup last week, but that turned out to be a bust as price didn’t go down to get me triggered. Looking back, there was actually a great long opportunity on Monday that we could have taken and made some mad moolah on.

Throughout the week, we saw improved risk sentiment towards the euro help EUR/JPY stay afloat. The pair did find initial resistance at the WATR (113.65) on Tuesday, but eventually retraced back to the WO near 112.50.

However, after ECB President Jean Claude Trichet delivered some hawkish comments, indicating that the ECB may soon raise interest rates, EUR/JPY shot up nearly 150 pips, allowing it to convincingly break past key resistance at 114.00 and the PWH. This gave EUR/JPY enough momentum to trade slightly higher on Friday and stay above the 115.00 handle.

The trade setup that I’m raving about presented itself on Monday, when EUR/JPY had difficulty breaking past the PWL and the 112.00 handle. Bullish divergence had also formed, giving another sign that this was a potential reversal point.

We could have gone long at 112.00 for a swing play, going with a 100-pip stop. This would have given our position enough room to catch the full move up for the week. Assuming we bought at 112.10 (just above the close of the doji), we would have caught a sweet 300 pips, good enough for a 3:1 reward to risk ratio!

Now, if we had taken a more aggressive position and used a 100/1/1 STA and let the market stop us out, we could’ve doubled our end profits. Instead of ending up with a 3:1 win, if we had added to our position every 100 pips, we would’ve ended up with a rock solid 6:1 win! I don’t know about you, but that’s definitely good enough for me.

The rally we saw last week was impressive and definitely worthy of being the Weekly Winner. But for the week ahead, it’ll be interesting to see if whether this pair will continue to rise. The euro zone’s economic calender seems a bit light this week, and we can’t rule out the possibility of a retracement after seeing such a long, extended climb. But then again, it does look like the pair’s in a prime position to break out of its double bottom formation on the weekly chart, as Big Pippin pointed out.

Anyway, if anything does develop, you can bet I’ll have my eye on it! Keep yourselves in the loop by following me on MeetPips.com and Twitter! Peace out!