Short EUR/JPY on Pullback?

Much like my GBP/CAD short, I’m going with another simple technical trend setup, this time on EUR/JPY.  Is the recent bounce higher an opportunity play the longer-term move lower?

EUR/JPY 4 Hour Forex Chart

EUR/JPY 4 Hour Forex Chart

Since mid-September, EUR/JPY has been on a steady trend lower before finding a bottom last week around 135.00. Buyers have pushed the pair higher this week as risk aversion sentiment eases, as well as strong bearish sentiment against the Japanese yen. I think this may be a good opportunity to short some euros ahead of what could be a bearish weekend for Europe; we’ll get the final results of the ECB’s bank stress test on Sunday at 11:00 am GMT. Because the banks have had all year to build up capital reserves, the expectation is that we’ll see few failures, which may be priced in already. So, anything beyond only a few small banks needing help may spark some Euro selling at the open of trade next week.

I don’t know what will happen this weekend, but I do know European data is weak and the price trend over the past month has been down–that’s what I’m playing after a nice bounce higher. But because of weekend event risk, I’m going with a conservative setup of scaling into a short and using a wide stop from my average entry position. My main target will be the next major support level, last tested around this time last year. Here’s what I’m doing:

Short half position EUR/JPY at market (136.90), stop at 139.70, profit target at 132.00

Short half position EUR/JPY at 138.50, stop at 139.70, profit target at 132.00

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 2.8:1 if both positions are triggered. 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. Stay tuned!

  • ForExchange

    Hi Cyclopip,

    I look at your two trades differently:

    1. GBP/CAD short: well, it turned out the very best way you could wish. Weak GBP data and a surprise hawkish CAD Statement. This trade can turn into a very nice win in the long-term. Congrats on that. I also opened a bit late but I think it was not late to join the party. Later I might scale into it.

    2. I am not a fan of your EUR/JPY setup. I like your EUR analysis, but what I do not understand, why did you choose the JPY as a countercurrency? You basically paired the two weakest currency against each other. Probably any other option would have been better. Of course it is not a critic, I write it only to share my view and you can then highlight me your reasons. JPY loses across the board IMO because it made huge gains but not on the good economny, but only on risk aversion. So as the risk goes away it is normal to give all those pips back to the market.

    How do you see it?

    I wish you good luck and a nice weekend. I hope your EUR forecast turns out good as I am shorting EUR against some other currencies.


    • Cyclopip

      Thanks for your congrats and thoughts. Yeah, I’m not a current fan of my EUR/JPY trade at the moment, but it’s still technically valid and we’re coming up to an ECB meeting. That could be the focus for EUR/JPY movement in the short-term. That’s my thought for now, but it could easily change with how the market changes. For now, I’m going to hold since my risk is so tiny. We’ll see what happens 🙂

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