EUR/JPY looks interesting for a short play ahead of a potentially volatile European Central Bank event this week.
Check it out!
EUR/JPY Resistance at Fibs?
Looking to take a shot this week on EUR/JPY as volatility is likely to stay high with the European Central Bank’s latest monetary policy decision ahead.
It’s likely the ECB will follow other major central banks who have recently taken action to stimulate their respective economies, but the more uncertain question is whether or not that will come in the form of interest rate cuts (which are already in negative territory) or providing extra liquidity to the debt markets.
Of course, we won’t know until we get there, but I think the odds are pretty high that we are going to get some dovish rhetoric from the ECB and that we could see pressure on the euro not too long after the meeting.
So, I’m looking to be short euros this week, and doing it against the Japanese yen, which has benefited greatly from the spike in risk aversion sentiment after oil’s plunge and rising coronavirus fears this weekend.
EUR/JPY dropped right at the open with the other yen pairs, breaking below the recent swing low around 118.50 to nearly hit the 116.00 handle before finding buying support.
If the market makes it back up to the broken support area (which lines up with the Fibonacci retracement area between 118.00 – 119.00), then I will scale into a short position to play my directional bias on EUR/JPY.
My stop will be one weekly ATR from my average entry area to give the trade room to breathe given the big pick up in volatility, and my target will be the recent swing lows for a good short-term potential return-on-risk. Here’s what I’m going to do:
Short half position EUR/JPY at 117.95, max stop at 120.35 with 0.50% risk, max target at 116.00
Short half position EUR/JPY at 118.95, max stop at 120.35 with 0.50% risk, max target at 116.00
I’m only risking 1.00% of my account on this trade and I’ve got max potential return-on-risk of around 1.45:1 if both positions are triggered.
If the ECB cuts and the euro falls, I’ll look to adjust my position to reduce my risk / lock in profits if that scenario plays out. And if the ECB makes no change to policy and the euro pops, I’ll likely close the position out depending on the price action.
If the ECB cuts and the euro still pops, I’ll have to reassess and adjust at the that point based on whether or not I’m in a short position and where the market is at after the event.
What do you guys think? Are you watching EUR/JPY for a potential short position as well? Let me know in the comments section below!
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.