Short term
Trade view / 30 May 2016 at 13:58 GMT

EURJPY bounce should be spiked

FX Consultant / IFXA Ltd

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.  

The trade is also very vulnerable to month end rebalancing flows which could trigger the stop.  

Another major risk is if this weeks US trade data is weaker than expected and leads to chatter of a rate hike delay.


Entry: sell ½ position of EURJPY at market (currently 123.83), balance 124.20.

Stop: 124.57.

Target: 122.20.

Time horizon: five days.

EURJPY 30 minute second with second sell level noted:
Source: Saxo Bank

EURJPY four-hour with stop loss and take-profit noted:
Source: Saxo Bank

EURJPY five-year daily with moving averages:
Source: Saxo Bank

— Edited by Michael McKenna

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Non-independent investment research disclaimer applies. Read more
01 June
Andrei14 Andrei14
Michael, your vision of the market sometimes strikes. Worthy answer to the market. Thanks for your work.


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