Following an expected rate cut, ECB President Mario Draghi’s plan delivered a package of credit easing measures exceeded most expectations. The ECB will use a plethora of tools including ABS purchases, LTRO, and negative rates. We may also see more action if these liquidity measures do not support bank lending and stimulate the economy enough. The end result for euro was a strong tumble after the news came out that they were doing more than a rate cut and another round of selling once he announced the additional measures.
The daily chart of EUR/JPY shows the formation of a bullish Gartley pattern and the initial respect of the 200-day SMA from the end of last month. The one week rally however saw almost all of its gains completely erased this morning. While EUR/JPY has not traded below the key 200-day SMA since November of 2012, bearish sentiment may attempt to break that level. Despite the strong selloff, the 15-minute chart is showing that the pair is rebounding quite significantly and made a retest of the high that was seen at the spike from the rate decision. This rally will likely be sold into.
The trade: Sell EUR/JPY 139.60 with a stop loss at 140.50 and a take profit at 137.80. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading