Selling EURUSD on Euro break after BoJ

Trade: Selling EURUSD around 1.3285-1.3305

Stop: 1.3347 bid

Targets: 1.3168 and 1.3120

In support of the prospect of EURUSD downside:

• The Bank of Japan meeting was a key event this week across the major currencies – not only for the JPY, but also for the Euro, where much of the upside in this currency of late has been against the JPY due to buying in the EURJPY cross. With EURJPY correcting sharply lower as the BoJ delivered more or less what the market has over-anticipated, the Euro could correct across the board, with EURUSD perhaps a slightly less high-beta trade than the extreme action in EURJPY
• The JPY move and improvement in EU tail risks have perhaps been the main fuel for the amazing complacency of late across global markets, and with the BoJ out of the way and EU tail risks not particularly improving over the last few days, the move may be overdone and risks a period of possibly sharp consolidation.
• Technically, the EURUSD rally has paused for several days after trying to break above the old 1.3309 high, suggesting that it is struggling for additional upside at these levels. The sharp break lower and then retracement this morning offers an opportunity to test for further downside with a stop level well back above the 1.3300 support level that was broken today.

Trade management: If the pair trades below 1.3250, the stop can be lowered to 1.3317 bid and then to 1.3277 bid if the pair trades below 1.3220. The targets are placed near 61.8% and 100% of the magnitude of the previous 1.3257 – 1.3404 range.

Risk: this is just after a major event risk, and trading can be very volatile and give false tactical technical signals – so a very quick stopout may have higher odds than usual. There is also a major German news release (ZEW survey) at 1000 GMT that could move the pair either way. Some traders may wish to wait until after that event before trading at the risk the pair moves out of the entry range (though that could also mean that the initial stop can be placed at a lower level.

Daily Chart:

Weekly Chart:

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