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EUR/JPY saw a heck of a move higher since Draghi lit the fire under euro bulls a couple of weeks ago, but is a pullback just ahead? Another opportunity to go long?

EUR/JPY Long Setup

EUR/JPY 4-Hour
EUR/JPY 4-Hour

Definitely keeping it simple with this consolidation breakout setup on EUR/JPY’s four hour chart. After nearly two months of moving sideways between roughly 123.00 – 126.00, the pair finally broke to the upside after bullish comments from European Central Bank President Mario Draghi were taken as a signal that the ECB could soon be ready to adjust monetary policy.

Couple this event with last week’s news that the Bank of Japan’s intends to buy an unlimited amount of Japanese Government Bonds to ease the markets, and it makes sense that we’re seeing gains in EUR/JPY without much of a pullback so far.

Now that the market is testing the 130.00 psychological handle, and it’s doing it while showing a divergence signal between price action and stochastic indicator (marked on the chart above), I think a pullback may be just ahead. Also, we’ve got both the latest ECB and BOJ monetary policy statements next week, so it’s possible we’ll get a pullback on profit taking as traders reduce risk ahead of the major event.

With this potential price action in mind and the fact I still think the monetary policy divergence will still favor the euro over the yen, I am looking to go long on pullback. And I’ll keep my risk low with a small position size and wide stop given that we’re heading into two monetary policy decisions. Here’s what I’m doing:

Long half position EUR/JPY at 129.00, max stop loss at 126.75, max target at 134.00 for a more than 2:1 return-on-risk potential.

I’ll be risking only 0.5% of my account on this position and with pullbacks being shallow lately, I may potentially enter manually if I do see that again. Stay tuned!

As always, 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 simply follow what I do.

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.