With all the political and financial uncertainty in the euro zone these days, I can’t help but look at another potential short EUR position. Here’s a neat technical setup I’m seeing on EUR/JPY.
EUR/JPY Trade Idea
I’ve been keeping close tabs on the pair’s long-term descending channel as price has been hovering around the resistance for quite some time. But since I’ve already got a short EUR/AUD position open (and locking in gains!), I was having second thoughts about doubling my bearish bets on the shared currency.
Still, I did notice that price broke below its short-term range and completed its pullback recently, indicating that sellers are gaining the upper hand. Heck, the euro seems to be brushing off relatively upbeat economic reports and reacting more sensitively to political headlines as Forex Gump pointed out!
Aside from French election jitters, the shared currency is also getting dragged lower by Italian and Greek debt concerns. The European Commission gave a stern warning to the Italian government about its swelling public debt and gave it a deadline to trim the deficit by April to avoid violating EU rules. In Greece, the government is once again having trouble securing the next tranche of bailout funds since the IMF refuses to pony up the cash unless there’s some form of restructuring.
On the 1-hour time frame, I spotted a descending trend line connecting the latest highs of price action. Applying the Fib tool on the wave down shows that the 61.8% level is in line with the falling resistance and is also within an area of interest near 120.00. If any of the resistance levels hold, price could head back to the swing low near 118.50 or lower.
It’s worth noting, though, that euro pairs suddenly popped higher in the earlier sessions when headlines suggested that pro-Frexit presidential hopeful Le Pen is facing stiff competition. The latest Opinionway poll gave the lead to rival Macron who also gained the support of influential French centrist politician Bayrou, upping their chances to beat Fillon in the first round of polls and possibly even beating Le Pen in the run-off. However, I think that this could just be noise as it doesn’t change the fact that the entire euro bloc has plenty of uncertainties to deal with.
In contrast, the lower-yielding Japanese yen is enjoying the safe-haven flows at the moment, especially since traders are still touch-and-go with the U.S. dollar. Although the FOMC minutes suggested that a rate hike could be on the table for March, they also emphasized that this hinges mostly on incoming jobs and inflation reports so any disappointments on this front could send risk-off traders scurrying back to the yen.
I’m eyeing a short position at the 120.25 mark with a stop loss past the swing high and an initial profit target at 118.75 for a 1:1 play. I’ll be ready to move my target down to the daily mid-channel area of interest and longer-term floor around 112.50-113.00 and roll my stop down if bearish momentum picks up on more headlines.
I’ll keep y’all posted on my exact entry levels once I hop in. As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.
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