Shorting EUR/JPY on Retest of 97.00 – Trade Closed

Trade Closed: 16-07-2012 23:08

EUR/JPY Hourly Chart

I really thought I caught myself a winner with this one. The falling trend line that I spotted worked like a charm and price actually made its way down the charts to forge new lows.

For a moment, I was almost certain that this trade would turn out to be a winner, which is why I decided to move my stop to breakeven… and then the U.S. published its retail sales report and everything changed. Bummer, man!

After the markets caught sight of the ugly U.S. data, players started buying up higher-yielding assets. Apparently, many believe that the crummy U.S. sales figures will prompt the Fed to push through with QE3, and this led to a broad-based risk rally.

This took EUR/JPY all the way back up to my entry point at 97.00, where I had moved my stop loss.

Stopped out at breakeven at 97.00: +0 pips / +0%

Looking back, it’s easy to say that I probably should’ve quit while I was ahead. But if I really think about it, I believe I made a smart decision by moving my stop to breakeven.

Price had already set new lows and looked as though it was going to keep dropping, so the wise thing to do was to take risk off the table without choking off the trade.

All in all, I can’t say I feel bad at all! I followed my game plan but just got a bit unlucky! On to the next trade!

Trade Idea: 13-07-2012 00:58

EUR/JPY Hourly Chart

I had to wait a couple of days before putting up any positions on yen crosses because I didn’t wanna get burned on any new developments from the Bank of Japan rate statement. Now, it’s Friday the 13th, but that ain’t gonna stop me from taking this beautiful setup on EUR/JPY!

EUR/JPY just broke through support at 97.00, but is currently retracing after yesterday’s huge drop. I’ve thrown up the Fibonacci retracement tool and it seems that the 97.00 handle lines up nicely with the 38.2% Fib level! I think we could see the bears jump back in at this level, as it has also served as a support level earlier in the week. Stochastic is also near overbought conditions, so this pullback may be coming to an end soon.

Fundamentally, this trade makes even more sense. Risk aversion is back now, as markets players are realizing that all these central banks’ moves reveal their concerns about the future of the global economy. Furthermore, with the ESM not projected to start on time, Spanish bond yields continuing to rise, and Merkel holding strong on her stance against Eurobonds, we could see more trouble ahead for the euro.

As for the yen, I think the threat of more quantitative easing measures has died down, at least for the next couple of weeks. Yes, the central bank did add 5 trillion JPY to its asset purchase facility, but it also cut its loan facility by the same amount, leaving us with a ZERO net effect!

I think this gives me more leeway in considering going long the yen and I plan to do just that.

Here’s what I’m going to do:

Short EUR/JPY at 97.00, stop at 97.75, profit target to be determined.

I’ve gone with a stop of 75 pips because I want it to clear the cluster zone at the WO and PWL, as well as the falling trend line on the 1-hour chart. If price hits my stop loss, I think it’s safe to say that my trade idea is invalidated.

As for my profit target, I think with how strong risk aversion is right now, I can consider going for a bigger gains on this trade. For now, I haven’t set a target, but I’ll definitely keep my eye out for those June lows at around 96.00. I can also throw up the Fib extension to help me determine my profit target once the retracement has taken place. Lastly, I’ll be risking 0.75% of my trade on this account.

What do you guys think of my trade idea? Do you think the downtrend in EUR/JPY can continue?

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