Even though I stopped out at breakeven on my EUR/JPY trade, I thought market conditions were still prime to hold a short position.
First, the technical setup was pretty clear. A doji had formed at the 97.00 mark, and the weekly open had held. Also, Stochastic was also overbought, indicating that the bulls could be running out of steam.
Second, I thought the fundamentals were still leaning against the euro as well. As Forex Gump pointed out recently, the German high court threw a curveball as it said it would be taking its sweet time deciding whether or not Germany could participate in the European Stability Mechanism. I thought that this would continue to weigh on the markets and prevent the euro from making any significant gains.
I decided to go ahead and short again but this time went with a smaller position, tighter stop, and a less ambitious profit target.
Short EUR/JPY at 97.00, stop at 97.50, take profit at 96.20.
I thought that if price hit 97.50, it would be a clear indication that the euro bulls were back in control and we could see a much larger retracement. I also adjusted my expectations for a steep drop, and put my target at the recent lows around 96.20. This left me with a decent reward-to-risk ratio of 1.6:1. Lastly, I also scaled down my risk and limited my exposure to just 0.50% of my account.
Since I put up my position, a lot has happened on the pair. EUR/JPY set off to touch the week's highs around 97.30. However, just like EUR/USD, the pair dropped on U.S. Fed President Ben Bernanke's speech midway through the European session. The pair fell all the way down to 96.50, and for the second time in less than a week, I thought this trade was a sure thing!
But the markets had other plans for me as the pair shot straight back up and is now trading at the resistance levels around 96.30! Bummer!
For now though, I'm going to keep my position open.
I think with the risk at hand, it's still worth a shot. Stochastic is back in overbought territory and resistance is holding quite well. The pair tends to range, so I think this 97.30 level could prove to be the top of the range, with the pair finding support around 96.20 to 96.50. With no data coming out today from the euro zone, I also don't see any catalysts to send the pair off to new highs.
Hopefully everything pans out, but if they don't, hey, that's the risk I'm willing to take as a trader!