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Today’s Trading Edge: EUR/JPY – Exhaustion in Short Selling May Only Be Temporary

Posted by Edward Moya on Jul 31, 2014 6:21:00 AM


Yesterday, EUR/JPY was able to break above 137.35 and provide some relief to the very strong downward trend that has been in place since early April.  The rebound from 136.55 to 137.84 has formed a tentative bearish Gartley pattern (easier to see on the 4 hour chart), but the downward move may not be initially strong as month end flows still see some profit taking occurring. 

This morning has so far provided many mixed headlines regarding risk for the euro.  Selling pressure was supported from both Eurozone CPI coming slightly lower than expected and as Russian troops gather at the Crimean peninsula.  On a positive note, EZ unemployment rate declined to 11.5%, a little better than the forecast of 11.6%, German Retail Sales climbed 1.3%   and French Consumer Spending improved to 0.9%. 

The overall trend still remains bearish but traders may want to wait see if price respects the 50-day SMA, which currently trades at 138.29.  The daily chart of EUR/JPY shows that since a key high was achieved at 145.67 last December, price has steadily made lower highs and lower lows.  Major support will come from the 135.00 zone, which could also be followed by 131.00.  If price can have a daily close above the 140.00 barrier, a major pause in the downward move may occur. 

The trade: Sell EUR/JPY 138.21 with a stop loss at 139.71 and a take profit at 136.71.  The Risk/Reward Ratio is 1:3. 

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading


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