Taking a short-term shot on EUR/JPY this week ahead of European data. Will the retested broken support turn into resistance?
Resistance Play on EUR/JPY?
Keeping it simple with this week’s idea, playing potential resistance at a broken support level. On the four hour chart above of EUR/JPY, we can see that the pair recently broke minor support around the 120.50 area and dropped as far as 119.25 before the bulls took back control. And in the past couple of sessions, the bulls pushed pair back up to the broken support area, where we are now seeing some resistance and the stochastic indicator showing potentially over bought conditions.
I’m looking to taking short-term short position in this area to play the upcoming business sentiment data from Europe, which has been showing contractionary readings since the beginning of the year.
So the odds are that conditions haven’t rapidly improved and that we could see another round of negative sentiment on Euro area business conditions.
I also like a short play to go long some Japanese yen, which tends to rally during global risk aversion environments, like the one we’re seeing today as the mood on U.S.-China trade negotiations turned sour to start the week. If this uncertainty persists throughout this week, this would likely support the yen short term.
So, I’m putting up orders to short EUR/JPY on a further bounce higher, and to limit my risk, my max stop will be above the next resistance area just under 121.50, my max target will be the next support area beyond last week’s swing low, but I’ll likely take profit before that. Here’s what I’m doing:
Short half position EUR/JPY at 120.50, max stop at 121.60, max target at 118.50
I’m only risking 0.50% of my account on this trade and I’ve got max potential return-on-risk of around 1.81:1. But I’ll likely cut out of this trade by next week, again, all depending what we see from European data, and/or news updates on the U.S.-China trade story.
Of course, if the stars line up for a potential longer-term swing play, then I won’t hesitate to adjust my plan to keep risk low and maximize the profit potential.
What do you guys think? Are you watching EUR/JPY and looking to play the resistance area? Let me know in the comments section below!
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