EUR/JPY Downside Breakout?

After about two months of consolidation, we finally might be seeing a breakout in EUR/JPY.  Just the beginning of a downside move?

EUR/JPY 1 Hour Forex Chart

EUR/JPY 1 Hour Forex Chart

I’ve got the one hour chart above on EUR/JPY, and we can see that got a strong downside move thanks to a couple of fundamental drivers: recent ECB rate cut speculation and a recent positive shift in Japanese economic data. The positive shift in Japanese data (quarterly GDP, inflation data, industrial production, etc.) has forex traders pricing in the likelihood we won’t see any new stimulus moves from the Bank of Japan year.

Technically, the market was has been in consolidation mode pretty much since February (with a burst of volatility here and there), staying between 140.00 to 143.00 during that time.  We finally got a downside break of the major psychological 140.00 level last week, which may continue to attract fresh sellers into this pair.  I’m watching the alignment of the major psychological level, moving averages and Fibonacci retracement levels for a potential short play if there is a pullback.

Question is, “will there be a pullback?” I don’t know, but unless the BOJ announces more stimulus this week or the ECB issues rhetoric counter to a rate cut, the pressure is still on the pair and I’ll try to be ready for anything that happens.

For now, my initial move is to go with short orders at the 61% Fib/major psych level, my max stop will be wide using the weekly ATR (but I’ll look to cut the trade if the previous week high 140.95 is broken), and my target will be the next major support level last seen in February.  Here’s what I’m doing:

Short full position at 140.00, stop at 142.00, max target is 137.00

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.5:1. But again, if the 141.00 area is broken, I’ll look to cut out earlier on this trade.  Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary.