First Trade of the Year: Shallow Retracement on EUR/JPY? – Trade Closed

Trade Closed: 2013-01-07 22:55

It ain’t exactly how I wanted to begin 2013, but what’s a one-eyed monster to do when risk aversion kicks in?!

EUR/JPY 4-hour Chart

As it turns out, the markets weren’t quite expecting the minutes to be so hawkish. Word got out that some FOMC members actually voted to stop QE this year, which put the scare on traders who were counting on the Fed’s “QE4ever” to keep money easy and high-yielding assets afloat.

Naturally, this led to a bout of risk aversion, which caused EUR/JPY to dip below 114.00, break the Fibs, and hit my stop loss.

Stopped out at 113.75: -75 pips / -0.50%.

It sucks seeing EUR/JPY drop the way it did just before the release of the FOMC meeting minutes last Thursday. Why? Because not long after the minutes were out, the pair scrambled back up above 114.50! What a bummer, dude.

Hmm… This sorta makes me wonder if I had set my stop too tight. After all, setting it just 10 pips lower would’ve saved me from a loss. My trade would actually be in the black right about now.

But then again, that’s just the way the cookie crumbles here in the world of forex. One day you’re in, and the next day you’re out! Auf Wiedersehen – oops, I mean peace out!

Trade Idea: 2013-01-03 01:50

The calendar may have ticked 2013 but there’s one trend that I expect to continue from 2012 and that’s yen weakness!

EUR/JPY 4-hour Chart

Over the past three months, the yen has been in a major, Charlotte Bobcats-like slump, thanks to repeated jaw-boning efforts by Bank of Japan officials. Now that Shinzo Abe and the LDP party are in control, chances are that the BOJ will be pressured to boost the Japanese economy via bond purchasing.

That said, I do expect to see yen weakness continue, at least for the start of 2013.

In the meantime, I do think we’ll see risk appetite continue to dominate the markets, as the U.S. Congress finally passed the fiscal deal yesterday. I wouldn’t be surprised to see higher-yielding currencies like the euro trend higher over the remainder of the week.

So how do I plan to take advantage of the whole situation? By buying EUR/JPY!

Of course, I could have played this setup on numerous other pairs, but I do think the setup on EUR/JPY provides me with a great entry to hop on the short-yen bandwagon, while also giving me an excellent reward-to-risk ratio.

Looking at the 4-hour chart, I can see that the 114.50 MiPs line up nicely between the 50.0% and 61.8% Fib. Furthermore, the 114.50 mark served as a solid resistance point late last week, so I think buyers will be looking to jump in there once again.

Lastly, given how strong this pair has been trending higher, I’m expecting a shallow retracement, and that’s why I’m going to be a little more aggressive on this trade.

Buy EUR/JPY at 114.50, stop at 113.75, take profit at 116.00.

If everything goes as planned, I should be taking home 150 pips, good for a 2:1 winner. Hopefully, I continue my good fortune from 2012 and start the year off on a winning note!

Do you agree with my analysis? Hit me up with your thoughts on this setup below!

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  • JJ6845616

    I went long at 111.71 at EUR/JPY and closed it at 114.72.Yaa, u are right,114.50 was a strong resistance week but now i am expecting a retracement towards 113.10/20 and i have a plan to go long again if price breaks above 114.5 again after dipping down.Good luck for ya though!

  • Samuel

    and… you’re out! Boum!

    • cyclopip

      Not how I wanted to start the year! But at least my loss didn’t make a huge dent on my account!

  • Guest

    So many dreamers in this game. Most of these setups doesn’t work because of different market conditions. But there is a perfect moment in the market that’s so elusive to most traders.

  • tonio

    try to add 78.6 level to your fibs along with your 150 day SMA you will get better readings

  • tonio

    on the 1 hour time frame 150 Sma on the 4 hour time frame 40 day SMA works best along with 78.6 fib level

    • cyclopip

      Thanks for the tips bro! I’ll look into it!