Looking to play a simple forex chart pattern that plays along with my weak fundamental bias on the Euro and risk sentiment in general.
With a return of the weak Euro sentiment after a bearish reaction to last week’s ECB meeting and today’s weak read on European investor sentiment, I think the downtrend in EUR/JPY has a chance to continue. I also factor in the recent geopolitical issues going on in Europe and the Middle East as a potential to drive capital out of riskier assets to “safe haven” plays (e.g., Japanese Yen, bonds, U.S. Dollar, etc.). Fundamentally, the odds of the pair continuing lower is attractive IF the story remains the same.
Moving on to the technicals, we’ve already seen a recent move lower in what could be characterized as a descending channel on EUR/JPY. To me, the potential for success and the return-on-risk is more attractive if I wait until the market gets back up to the top of the falling channel, where it could attract more sellers into the downtrend. So, I’ll look to enter there at the major psychological handle with a stop above the channel, and my profit target at the next big major psychological level. Here’s what I am doing:
Short full position at 137.00, stop at 138.50, profit target at 135.00
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 1.33:1. 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.