Technical review of the following trade recommendation:

Japanese bank Nomura has apparently issued a trade recommendation selling EUR/JPY at 109.50 with a target of 106.00 and a stop at 111.00.

Reasons for the trade are cited as all the latest factors for the rise are running out of steam, such as US Treasury yields, recent BOJ easing and lack of improving data in the Eurozone.

RISK: 150 pips
REWARD: 350 pips
Reward to Risk: 2.33 to 1

Taking a look at this trade, the hourly chart above shows:

  • 100 and 200 hour MA at the 109.84 and 109.89 levels
  • The 50% of the move down from yesterday comes in at the 109.89
  • Therefore, good defined resistance at this area.

This would be a better level to sell against for these technical reasons.

  • Seeing the market had been up and down going back to March 15th (14 trading days), anticipating a break away is not a bad idea at this point.
  • Moreover, the market has gotten more choppy over the last few days of trading. Two days ago, the pair shot up. Yesterday, the pair fell sharply. Today the price has rebounded, but has stayed below the 50% of the recent range.

I think, if the price can stay below this area, I am on board. However, I am not sure I would risk a move all the way back up to the 111.00 area. In other words, in my eyes, either the market is going to trend now, or it is going to waffle back and forth. I would nevertheless, continue to use the 50% and moving averages as proxy for bullish and bearish with a bearish bias.

As far as the projected target, looking at the daily chart below, if the market is ready for a trend back down (for the reasons cited), the 106.00 level is a very doable target.

  • The 200 day MA is at the 1.0616 level currently.
  • The 38.2% of the move up from the January low (2012 range) comes in at the 105.92 level.
  • Therefore, the 106.00 splits the two key support levels.

Targets on the way down would include the:

  • 108.47 – Low from March 22nd
  • 107.71 area – upwars sloping trendline
  • 107.48 – Low from March 12th
  • A move below this level should open the downside for the test of the 200 day MA