Despite the stop being hit on our long EURJPY trade last week, the buy side still remains like a better way to play the pair in the current technical and fundamental market environment.
For starters, note that EURJPY today tested the 130.00 key psychological support and although the price pushed through this level, the price has now
recovered back above it.
130.00 is not only a psychological price level for EURJPY at this point, but there is lots of solid support also:
- The broken falling trendline on the daily chart is being retested from the other side. A successful retest can result with the onset of the next bullish leg higher.
- The support trendline of the most recent downward channel also coincides in this area. This channel is better visible on the 4-hour chart and can
be helpful in determining the early signs of a bullish reversal here.
- A confluence of Fibonacci retracements of the 38.2% and the 61.8% is also in exactly this same area.
For the above reasons, taking a long trade on EURJPY at the current levels close to 130.00 provides a good opportunity from a risk-reward point of view since we can use a tight stop of just below 130.00 as follows:
- Entry: Near 130.00
(around current levels)
- Stop: Below 130.00, 129.75 can be used as a precise level to allow breathing room for the trade.
- 1st target - 1 quick move to 131.00 area
- 2nd target - bullish breakout above 131.00 after which a move to 133.00 can be targeted but
that's a trade that will take longer to materialize.
Note that the main downside risks for this trade remain:
- a sudden change in risk sentiment (broad risk-off for some reason in which case JPY strengthens)
- or further Euro weakness related to the situation in Italy or something of this nature.
If EURJPY pushes through 130.00 convincingly, then further significant downside
will probably be in store for the pair, with 128.00 standing as the next likely level to be reached. Thus in such a case, trading it from the short-side can also be considered, but for the moment that seems not very likely as the fundamentals at the moment are not supportive of that.
