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EUR/JPY have been bouncing back after a month-long beat down by the bears, but is that about to change with the technicals showing potential resistance ahead?

Downtrend Pullback on EUR/JPY

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


Starting off my trading week with a simple technical setup on EUR/JPY, a pair that has been rallying in recent sessions after fall from the mid-July highs just under the 132.00 handle.

At the beginning of August, we saw a double bottomish pattern that preceded the current move higher, which was likely helped along after the broad fears sparked by Turkey’s recent currency crisis have seem to fallen off a bit.

Now, the market’s focus will possibly turn to the upcoming ECB monetary policy minutes and the European PMI reports for the euro, and for the yen we’ve got PMI data as well. The PMI events aren’t usually market movers for either currency, but since they are leading economic indicators, longer-term sentiment could shift if they signal potential weakness ahead.

The ECB’s monetary policy meeting minutes could be interesting for EUR/JPY as we’ll possibly get more details on the ECB’s bias of holding rates until late 2019, and whether there’s a possibility of a rate hike coming sooner.

With momentum still to the upside for EUR/JPY (but likely running out of steam based on the Stochastic levels), I am looking for a little bit more pullback before hopping in short, setting my order around the 61% Fib area. And I’ll do so for a very small position because of the upcoming PMI data and ECB meeting minutes. After that, I’ll look to put on a second position if the events and the market’s reaction makes sense to do so.

My stop will be a full weekly ATR from the average entry of both positions to give the position room to breathe, and I’m looking to target the 2017 lows for a solid potential R:R. Here’s what I’m doing:

Short quarter position EUR/JPY at 127.50, max stop at 129.50, max target at 125.00

I’ll be risking only 0.25% of my account and with this setup, I have an initial 1.25:1 return-on-risk. I’ll look to add my second position after this week’s events if it makes sense to do so, of course at a risk of no more than 0.50% to my account and at a bigger reward-to-risk potential.

Again, with top tier events ahead and fast developments happening in geopolitical news, I will not hesitate to adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on what happens and how the markets react.

Stay tuned and 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.

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