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The spotlight is back on French politics as the latest round of polls revealed that pro-Frexit Le Pen is still in the game. Here’s what my one good eye is seeing on EUR/JPY.

EUR/JPY Trade Idea

I’ve been posting about this EUR/JPY long-term descending channel in my Weekly Watch for quite some time, and I’m seeing more confirmation with a short-term double top pattern right on the channel resistance. Price seems to have broken below the neckline of the formation, confirming that euro bears are gaining the upper hand.

The next potential support is right around the area of interest or former resistance at the 116.50 minor psychological level then at the floor around 112.00. If the pair still breaks below those lows, it could head further south to the very bottom of the descending channel. However, stochastic is already indicating oversold conditions so a bounce might be due.

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

As for fundamentals, I’m seeing a fresh catalyst for a euro selloff now that Macron slipped in the polls and is tied again with Le Pen after the latest presidential debate. This could revive Frexit fears, even as third-placer candidate Fillon is climbing up the polls. Either way, this makes traders wary of French election risks again, especially since the latest batch of euro zone reports have undermined the ECB’s shift to a less dovish stance.

ECB Governor Draghi still has a speech coming up this week, though, so I’m not inclined to hop in at market just yet. Besides, the pair is already trading at its bottom WATR so there’s a good chance for a bounce or a quick pullback from here.

I also have another long JPY position in play so I’m not keen on rushing into another one until I see sufficient confirmation. Still, I’m holding on to my pro-JPY bias because of falling U.S. bond yields on dampened hopes of seeing tax reform within the year, weighing on U.S. equity markets and Fed rate hike expectations as well.

I’m eyeing a short on a pullback to the 118.50-119.00 area or on a strong break of the recent lows near 117.50. I’ll set a full WATR stop of at least 200 pips and aim for the area of interest at 116.50 as my initial profit target for a potential 1:1 play. If fundamentals stay the same, I can consider moving my target down to 112.00 and trailing my stop to lock in gains.

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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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.