Today’s pop higher in EUR/JPY brings the pair to a strong resistance pattern area on the chart. Will more bears hop in at the better prices?
EUR/JPY Resistance & Reversal?
As mentioned above, EUR/JPY moved higher early in the Monday session, likely due to another round of stimulus measures announced from the Federal reserve, this time announcing no limit to their support for the financial markets.
This created a short-term risk-on environment, hence the sell-off in the Japanese yen during the U.S. trading. But to no surprise to anyone who has followed politics for the last decade, U.S. lawmakers had to ruin the party for the bulls as their second attempt to pass the coronavirus stimlus bill failed in the Senate. This has drawn a quick return to a risk aversion environment, positive for the yen, and potentially a new leg lower for the downtrend in EUR/JPY
As we can see in the four hour chart above of EUR/JPY, today’s bounce brought the pair up to just below the major psychological handle of 120.00, which has recently been a very strong area of interest going all the way back to January. The question now is whether or not this really is a shorting opportunity at better prices?
Of course, I have no idea given that the coronavirus stimulus bill and other supportive proposals will continue to come from around the world. But given that we’re just at the beginning of this pandemic and the high probability we’ll see some very bad numbers from Europe this week, I’m taking the shot that traders will continue to be fearful this week.
So, I’m going in by scaling into a short position from current levels, and my max stop is one daily ATR from today’s entry, which should be enough to weather short-term volatility. My max target will be the recent swing lows that held strongly at the beginning of March. Here’s what I’m going to do:
Short half position EUR/JPY at market (119.41), max stop at 121.70 with 0.50% risk, max target at 116.70
Short half position EUR/JPY at 120.30, max stop at 121.70 with 0.50% risk, max target at 116.70
I’m only risking 1.00% of my account on this trade if both positions are triggered and I’ve got max potential return-on-risk of around 188:1, pretty good for a short-term trade.
What do you guys think? Are you watching EUR/JPY for a potential short position as well? Let me know in the comments section below!
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