EUR/JPY has been in a massively bearish trend for some time now. However, over the last month or so, we have seen a bit of a rally. The real question when something like this happens is whether or not it is a rally, or merely a pullback. With the Euro, for some reason, hope burns eternal and it is a currency that simply won’t roll over at times. Think of it this way: If the drama that we have seen lately in Europe had gone on in Mexico – where do you think the Peso would be right now?
The EUR/JPY pair is a highly risk-sensitive one as well. The pair tends to follow equities, but lately has been tracking the drama in Europe – like almost everything else. So because of this, the market has been a little bit skewed lately.
50% Fibonacci
The high from the Thursday session reached the 50% Fibonacci retrace but promptly retreated from that surge. The pair formed a shooting star, and as a result this sent up red flags on my radar. The candle was perfectly formed, and at the perfect space for my money. Because of this, I am very interested in selling at this point. Now it is just a matter of getting the proper signal to sell.
The breaking of the lows from the session on Thursday will set up a sell signal for me. The level below, down to the 99 level, shows that there could be a bit of a bumpy ride. I would sell, but expect choppiness down to the 99 handle. However, I am willing to also hold onto the trade and aim for the lows again.
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The one caveat to this trade is that you will have to keep an eye on the USD/JPY pair as well, as the Bank of Japan is certainly watching it. As long as the USD/JPY pair doesn’t melt down, the Japanese will be less likely to intervene. Although they don’t want a fall in this pair either, their main source of concern is USD/JPY. Also, headlines could really cause this pair to fall rapidly, so I expect this pair to be very profitable if the trade moves my way.