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EUR/JPY Technical Analysis: Short Setup Available

EUR/JPY Technical Analysis: Short Setup Available

2015-12-14 20:23:00
James Stanley, Strategist
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Talking Points:

  • EUR/JPY Technical Strategy: Flat
  • EUR/JPY has throttled back up to prior resistance levels
  • The Fundamental picture for EUR/JPY has not changed, and as such, traders can use this recent rip to sell EUR/JPY at better levels, as we had outlined in our previous piece.

In our last article on EUR/JPY, we had just seen price action run into a vaulted support level in the 130-region. This is a major psychological value that can have a tendency to stop a trend dead in its tracks. And even though we had a European Central Bank meeting on the calendar for later that week, we cautioned traders about trying to chase the move while at support.

Well, ECB came out in a very unexpected manner with significantly less firepower than what most investors and analysts are looking for, and that support catapulted prices higher and broke through numerous resistance levels. This is yet another reminder that no matter how strong a trend looks or how likely a future event may seem to be – price action is always unpredictable and risk management is always important.

But now that the dust has settled from that ECB-movement, traders may be able to line back up on the trend in EUR/JPY with the luxury of being able to sell at higher prices. Fundamentally, nothing here has really changed: Europe is still deflating with a Central Bank that will likely be looking to do more down-the-road, while Japan is deflating with a Central Bank that won’t be as likely to do something. The Japanese Government Pension Investment Fund just took a $64 Billion Drawdown, and like most traders, they’re probably a bit sensitive and cautious towards exposing themselves to even more risk.

On a technical basis, we had a very familiar trend-line come back into play after that post-ECB rip, and this is servicing as near-term resistance (shown on the below chart, in purple). Traders can look to lodge stops on short positions just above this level for approximately 175 pips of risk with current prices. And while this may be a wide stop, profit targets at 130 could present 280 pips of potential up-side; so it may be worth lowering the position size in order to take on that wider stop for traders that want to sell the Euro.

Alternatively, traders can look to place stops above resistance at 133.56, which is the 50% Fibonacci retracement of the most recent major move. This level had functioned as short-term support after the post-ECB pop, and quickly became resistance after the pair slid last week. Traders can look to place more aggressive stops on short positions above that Friday high at 133.618 to take on approximately 80 pips of risk. With this approach, should 132 come into play, traders can use that as an opportunity to adjust stops to break-even, or perhaps even begin to scale out of the position. 132 is a heavy zone on EUR/JPY, as there are three different Fibonacci levels within a 35 pip-range, and this has led to considerable recent support that will likely pause price action again should we trade down to these levels.

EUR/JPY Technical Analysis: Short Setup Available

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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