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Much like my GBP/CAD short, I’m going with another simple technical trend setup, this time on EUR/JPY.  Is the recent bounce higher an opportunity play the longer-term move lower?

EUR/JPY 4 Hour Forex Chart
EUR/JPY 4 Hour Forex Chart

Since mid-September, EUR/JPY has been on a steady trend lower before finding a bottom last week around 135.00. Buyers have pushed the pair higher this week as risk aversion sentiment eases, as well as strong bearish sentiment against the Japanese yen. I think this may be a good opportunity to short some euros ahead of what could be a bearish weekend for Europe; we’ll get the final results of the ECB’s bank stress test on Sunday at 11:00 am GMT. Because the banks have had all year to build up capital reserves, the expectation is that we’ll see few failures, which may be priced in already. So, anything beyond only a few small banks needing help may spark some Euro selling at the open of trade next week.

I don’t know what will happen this weekend, but I do know European data is weak and the price trend over the past month has been down–that’s what I’m playing after a nice bounce higher. But because of weekend event risk, I’m going with a conservative setup of scaling into a short and using a wide stop from my average entry position. My main target will be the next major support level, last tested around this time last year. Here’s what I’m doing:

Short half position EUR/JPY at market (136.90), stop at 139.70, profit target at 132.00

Short half position EUR/JPY at 138.50, stop at 139.70, profit target at 132.00

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure I have a potential reward-to-risk ratio of about 2.8:1 if both positions are triggered. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.