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Trade Closed: 2010-07-21 23:15

It turns out I was right in predicting that EURJPY would drop like a rock. Check out that slide all the way down to the 110.00 mark! Unfortunately, I missed this boat since the price didn’t climb all the way up to my entry at 113.30.

I guess traders have started to price in the possibly disappointing results of the EU stress tests. There’s even talk of “leaked results” of the stress test revealing that some Spanish and French banks were issued failing marks. Yipes!

Trade Idea: 2010-07-20 23:19

PoD Chart

On the fundamental side of things, I don’t believe there’s too much upside for the euro to keep pushing higher. For one, the euro has been having trouble rising across the board, struggling against the dollar, pound, Canadian dollar and Australian dollar the past couple of days (yes, I did look at all those pairs!). This signals to me that perhaps the euro’s bullish run as of late is coming to an end.

Also, Hungary once again popped into the spotlight this past week. Even though Hungary is not part of the euro zone, there are concerns of potential contagion that could spill over onto it’s European neighbors. This has caused some of weakness in the euro that we’ve seen earlier this week.

With stress tests coming out later this week, I think this is getting traders a little jittery. Just look at what happened last Friday – equities and higher yielding currencies all took a hit. Risk aversion creeping back into town? Perhaps! I think traders may look to cover their long euro positions ahead of the stress tests results, as we all just don’t know what may happen.

Now as for the yen, I think it stands to benefit if we see more runs of risk aversion. It seems to be stronger than the dollar lately, as the dollar has been plagued by its own fundamental weakness. If we see traders decide to chill out on riskier assets, we could see the yen become the primary beneficiary.

On the technical side, EURJPY seems to be ranging with very strong resistance around the 113.30-113.50 region and support at 111.60. Stochastics is at overbought territory currently, but the 4-hour chart hints that the pair could still pop up a little higher. Therefore, I’m going to set my sell order to get a better price.

I will ultimately be aiming for 110.00, but I will lock in some profit at 112.00. To give my trade room to breathe, my stop will be 75% of the pair’s average true range of 150 pips.

Here’s my game plan:

Short EURJPY 113.30, pt1 at 112.00, pt2 at 110.00, sl at 114.50. As always, I’ll be risking 1% of my account on this trade.

Wish me luck and don’t forget to follow me on!

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