The EURJPY Case Story

Good day Traders!

Time to prepare for the London open and the rest of the session! Grab a cup of coffee, eat a good breakfast and fasten your seat belt for today’s market – I am sure it will give us lots of fireworks!

What will the USD do and how will it behave? It is time to grab our crystal ball and hope that its predictive value remains intact! 🙂 Anyone who wants to share an opinion, please feel free to do so down below! If you are looking for more additional Forex services or Forex Tools, feel free to look here.

To be honest, the USD has shown mixed signals through the Asian session. Compared to yesterday’s article USD roller-coaster, the Aussie triangle actually broke to the downside. The EURUSD however is range bound. The GU also made a slightly deeper retracement / continuation lower, but the NZDUSD actually pushed higher. The Kiwi showed strength and made a new high and proved its bullish potential, although it move up is slow paced. All in all, the USD is going sideways and waiting for confirmation before trading in these cases does have value – especially if you are a swing trader.

I do see an opportunity for trading the EURJPY. When looking at the day chart we see a similar situation as the USDJPY, where potentially a Wave 3 has ended (read more here). In that case both the EJ and UJ would be in a Wave 4.

A Wave 4 is normally not the ideal place to trade because the typical behavioral pattern of such a movement is flat, range bound and corrective of nature. Usually the best advice for trending traders is to stay out. It is a different story for Intra-day traders and range bound traders, who can use the boundaries and lower movements to their advantage. The Average True Range might help a trader with understanding how volatile the currency is.

24.01.2013 EURJPYDAY

This Wave 4, however, is a bit different from the usual scenario due to the fact that Wave 3 has been extended. In Pip terms the Wave 3 was 2,000 pips. It is an enormous move no matter which currency one observes.

Therefore I see the following opportunities for my own trading on this pair.

–          A sell for a wave 4 correction to the 236 or 382 Fib

–          A buy for the wave 5 bounce to the upside at the 236 or 382 Fib

–          A buy for the wave 5 continuation when the top is broken

A correction down to the 236 Fib or 382 Fib gives plenty of space to the target. Both targets are 300 pips and 600 pips reward versus a risk of 180 pips when the top is used as a protection stop loss (current price is 119). Not bad. Not great either. Of course that ration improves when the EJ would move into higher areas such as the 119.50 or 120, making the reward to risk more appealing.

Another way of lowering the risk is by zooming in to lower time frames to see the internal mechanics of the current price movements and to identify key levels and zones on a 1 or 4 hour time frame.

24.01.2013 EURJPY 1HRThe 618 Fibonacci retracement could be a key area of resistance if the Wave 4 correction were indeed to materialize in a 5 Wave for Wave theory A sequence. Price action reversal signals on a 1 hour chart around this level could give me an entry spot with substantial lower risk and huge reward. The reward however would be split into different take profit targets as targeting the 236 Fib of Wave 3 could be a long wait. Partial profit taking would be done on the way south as we go so to speak. I will monitor the 1 hour chart to see if we get any price action reversal signs to add to my 618 Fib sell which is already been filled (small risk).

The other trade setups are a bit further down the road. I myself am only interested in buying the EJ when the currency either moves back to the 236 or 382 Fib (could consider a swing trade there) or when the top is broken and I would attempt a small Wave 5 buy on a lower time frame such as the 1 hour chart.

Have a great trading day and let us know in the comment section what you are planning to trade!

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