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Draghi’s speech during the Jackson Hole Symposium later this week could be the main catalyst on deck, and I’m counting on the lack of ECB taper details to push this pair lower.

EUR/JPY Trade Idea

EUR/JPY just recently broke below the bottom of its rising wedge formation visible on the daily time frame. This signals that a long-term selloff is in order as the chart pattern is approximately a couple of thousand pips in height.

Stochastic has some room to go before hitting oversold levels, which means that euro bears could have enough energy left to push for another leg lower.

EUR/JPY Daily Forex Chart
EUR/JPY Daily Forex Chart

Zooming in to the 1-hour time frame reveals that the pair is also moving inside a short-term descending channel. Applying the Fib tool on the latest swing high and low shows that the 61.8% retracement level coincides with the channel resistance and is also close to the 129.50 handle.

EUR/JPY 1-hour Forex ChartEUR/JPY 1-hour Forex Chart
EUR/JPY 1-hour Forex Chart

A larger correction could last until the 130.00 major psychological resistance that also lines up with an area of interest. Stochastic is already indicating overbought conditions on this time frame, suggesting that sellers might be ready to hop in soon.

While most market participants are anticipating Draghi to talk about the central bank’s taper plans, the ECB actually already clarified that they won’t be divulging a lot of deets on their next policy moves just yet. Besides, it seems unlikely that the ECB head honcho would say anything to further stoke euro gains as this would hurt domestic inflation.

Meanwhile, geopolitical risk appears to be popping its head back in the financial markets on the start of the joint military drills between the U.S. and South Korea. Keep in mind that North Korean leader Kim Jong Un is watching Uncle Sam’s next moves very closely, threatening to give the thumbs-up for a missile strike on Guam on the slightest provocation.

This could prop up demand for the lower-yielding Japanese currency, which tends to act as a safe-haven during risk-off days. In addition, the dollar’s luster is also being dulled by the drama in Washington after Bannon’s resignation.

I’m looking to short at 129.75 with a stop loss past the swing high at 130.75 and a profit target at 127.25 for a potential 2:1 play. What do you guys think?

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