Downside momentum has picked up in EUR/JPY this week, and with more weak economic updates likely on the way for the euro for the rest of May, I’m looking to play the trend lower in the pair.
Longer-term EUR/JPY Short Play
As we can see on the four hour chart above, EUR/JPY has been in a slow move lower for most of 2020, starting the year around 122.00 before hitting YTD lows just under 115.00 on the session.
And this week, we saw a particularly strong round of downside momentum, likely due to the latest round of economic updates from Europe, most notably, the historically bad business sentiment data released this week (Eurozone economy services business activity index drops to 12.0, a record low).
With more data ahead to likely point to a dire economic situation in Europe for the rest of May, the odds are pretty good that pressure will continue on the pair, and I like to see if I can hop on the bear train.
But from a price action perspective, we may see a short-term bounce, signaled by the oversold stochastic indicator as the pair tests a major psychological area (around 115.00 handle). Given that, I look to set my orders to scale into a short position if the pair bounces, up to the falling ‘highs’ pattern marked above.
My stop will be above the falling ‘highs’ pattern, while my target will be the 2016 lows, making this a longer-term play in the portfolio. Here’s what I’m doing:
Short half position EUR/JPY at 115.00, max stop at 118.25 with 0.50% risk, max target at 110.00
Short half position EUR/JPY at 116.00, max stop at 118.25 with 0.50% risk, max target at 110.00
I’ll be risking 1.00% of my account with a potential 2.11:1 max return-on-risk. If the market does go my way and negative global sentiment rises, I may add to the position to maximize my potential gain.
That’s it for now. Stay tuned for updates 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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