EURJPY bounce should be spiked
EURJPY spiked in thin European markets on Monday which was likely due to month-end positioning. The rally wasn’t even strong enough to test the two-week top or the downtrend line from the end of March, implying renewed weakness ahead.
USDJPY bounced in part due to talk of a supplemental budget which some believe will be smaller than expected if the VAT hike is postponed but it is still below key resistance in the 111.80 area.
US data will be on the radar this week. Upside surprises in the data will feed the June rate hike hawks, which should renew the EURJPY downtrend.
The EURJPY technicals are bearish while trading below 124.40 looking for a break of 123.05 to extend losses to last week’s 122.20 low.
Today’s bounce in EURJPY is merely a correction inside the downtrend and provides a decent risk reward for nimble traders.
Management and risk description
A major risk to this trade idea is that the EURJPY bounce from the overnight low is still occurring which implies additional gains may occur and trigger the stop loss.
Entry: sell ½ position of EURJPY at market (currently 123.83), balance 124.20.
Time horizon: five days.
EURJPY 30 minute second with second sell level noted:
EURJPY four-hour with stop loss and take-profit noted:
EURJPY five-year daily with moving averages:
— Edited by Michael McKenna