For my last idea of the quarter, I’m going to re-visit EUR/JPY as the bears don’t seem to want to give up the strong resistance area.
For those of you who are long time readers, you may recall from a previous trade idea back at the beginning of March that I’m fundamentally bearish EUR/JPY. Those thoughts on where the respective central banks may be in their potential monetary policy moves haven’t changed, and plus I like the Japanese yen over the euro given the risk-off environment we’ve see lately.
Of course, risk-off flows were no where to be found at the beginning of this week with fears of a trade war subsiding, which brought EUR/JPY back to a very strong area of interest. And since then, we’ve seen a couple of bearish candle formations around the 131.50 – 132.00 area, as well as the stochastic indicator signaling potentially overbought conditions.
A reversal may be back in the works with price already moving back below 131.00, which makes this an interesting technical short-term short play for me, especially with inflation and PMI data from Europe next week to potentially spark volatility in the pair.
For now, I’m going to stay conservative with my entry by placing my orders at the strong resistance area, so I’ll need a bounce to go live on this idea My stop will be my usual weekly ATR setting and my initial target at the bottom of the range, where I’ll reassess and adjust. Here’s what I’m doing:
Short half position EUR/JPY at 131.50, max stop loss at 133.75, initial target at 129.25 for a potential 1:1 return-on-risk to start
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to maximize the trade by adding to my position/roll stop up to max out the trade if the conditions continue to favor the Japanese yen. Of course, I’ll look to close out quickly if conditions or data changes back in favor of the euro or if broad risk sentiment shifts back towards risk-on moves.
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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