Free Profitable Forex Newsletter
Hey! This is Philip with this week's trade idea of the Free Profitable Forex Newsletter!
A while ago, we sent a short EURJPY trade setup that partially worked, but later, the pair broke out and continued higher instead.
It is time to revisit this pair as it is showing bearish signs again.
The positive Euro sentiment is likely out of gas at this point
The positive Euro sentiment that supported the currency in the past two weeks is likely to fade. This would be mainly due to the further weakening of the economy and the return of Brexit in a deadlocked state.
- Yesterday’s crucial PMI data was again bad, though this time it was close to expectations, so the EUR sell-off was more modest. Nonetheless, this reinforces expectations for the ECB to do more easing/stimulus; hence, it’s Euro bearish.
- The Brexit deal agreed two weeks ago was not passed in the UK parliament (which is not surprising and is something we have warned about here and in our weekly analysis). Now, Brexit is back in the deadlocked state, and some corrections are likely due in GBP and EUR.
Euro likely to weaken and potential JPY strength the right combination for shorting EURJPY
The Yen, on the other hand, is patiently waiting for a risk-off event to trigger its strengthening. Stocks are near the all-time highs, but resistance has been fortifying here. It won’t take much to send stocks tumbling again, and such a scenario will certainly result in a stronger JPY too.
So, overall, it seems that EURJPY, in particular, has reached the maximum it could on the recent positive sentiment. From here, this positive sentiment is likely to fade, which could easily take EURJPY back toward the 118.00 area.
EURUSD formed a daily bearish signal yesterday, and separately, USDJPY is below the 109.00 resistance area.
This combination, of course, reinforces bearishness on EURJPY which itself formed a double bearish engulfing candlestick pattern on the daily chart. EURJPY is also trading at the resistance trendline of a new rising channel that is adding to the selling pressures here.
Further, our advanced overbought/oversold indicator shows the daily timeframe is hugely overbought, as shown on the chart below.
Overall, all of this increases the probabilities for a bearish leg to follow from here.
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- Look to enter around current levels (120.75) as close to the 121.40 highs as possible. We already have a bearish pattern behind us, so the setup is valid.
Stop loss:
- Place the stop above the 121.40 highs
- Above 121.50 to allow more breathing room for the trade and protection against a possible fake spike.
Targets:
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1st: 119.80 - 38.2% Fib retracement
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2nd: 118.75 - 61.8% Fib retracement
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The 118.00 area near the rising trendline can be used as a final target.
Trade signals from the past week
TOTAL: 0 pips in the past week
TOTAL: +1995 pips profit since October 1, 2018
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