EUR/JPY is one to watch this week with a busy European economic calendar and a textbook technical setup in the works. Check it!
130.00 Still Resistance on EUR/JPY?
EUR/JPY has been in a steady downtrend for the past few weeks, falling roughly 3.00% from its previous swing high around the 133.00 handle. The 130.00 handle was a brief battle zone between the bulls and bears, with the bears winning out the battle and the pair now holding below the major psychological area around 130.00.
However, we’re now seeing a couple of support arguments, first a possible double bottom forming between 128.50 – 129.00, and the stochastic indicator signaling potentially oversold conditions. Traders maybe take these as a signal a potential bounce is ahead and if so, 130.00 could be eyed by sellers as another opportunity.
I’m looking to take a nibble short around that major psychological area if retested, something we may see this week with a busy economic calendar from Europe to potentially spark some volatility. But more importantly, we’ve got the European Central Bank’s monetary policy meeting this Thursday, which almost never disappoints in providing euro traders some action. Pip Diddy did some work on the coming event, which is not likely to produce any policy changes so the presser rhetoric is the important thing to watch…are we gonna get a bullish or bearish tone from Draghi and company?
Overall, this trade goes with the latest global risk-off sentiment we’ve been seeing across the financial markets, and the negative sentiment surrounding Italy’s budget and bond market situation. Even though we did see a bounce in sentiment in today’s U.S. markets, the general negative themes that I think have been driving EUR/JPY lower haven’t really changed.
Of course, anything can happen in the currency markets, and with both the ECB and Bank of Japan having their monetary policy meetings over the next couple of weeks, I’m going to take this trade slow with a conservative, scaled entry plan, starting with a nibbler around the 130.00 handle if retested. I’m initially going in with only 0.25% account risk and a full position stop one weekly ATR from my entry. My max target will be this year’s swing lows. Here’s what I’m doing:
Short quarter position EUR/JPY at 130.00, max stop at 132.00, max target at 125.00
Again, I’ll be risking only 0.25% of my account and my potential return-on-risk is about 2.5:1 . I will likely add to this position later, depending on what we get from the ECB this week, of course only keeping my max risk to 0.50% if I do so.
Of course, with other major themes driving markets 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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