ST, Doji signal EUR/JPY weakness - Short via BPS or backspreads

FX:EURJPY   欧元/日元
165 0
EUR/JPY is boiling up with lots of bearish candles, such as bearish spinning top at 132.700 levels on daily chart . So, traders must wait and see the next price movement. In an uptrend, if a bullish candle forms after the Spinning Top ( ST ) pattern at a support level , it could be used as an entry point.

Considering previous immediate downtrend, bearish candle forms followed by this Spinning Top at 132.700 resistance level , hence it could be used as an exit point.

Gravestone Doji and candle resembling a shooting star on monthly occurred at 135.870 and 132.700 respectively.

It’s advisable to use a combination of patterns and indicators to determine your trading strategy.

As a result, these bearish patterns signal more downside potential up to 132.153 levels.

Currently, RSI (14) trending near 37.1247 levels with downward convergence with dipping prices.

Although the there is no sign of either overbought or oversold situation, it alarms bears trying to take over the declining rallies as the slow stochastic noises with %D line cross over around 30 levels on weekly (current %D line flashes at 29.4389).

Stay Short on EUR/JPY via BPS for risk averse backspreads aggressive bears:

Please observe in the above nutshell how delta risk reversal numbers are inching higher into negative values gradually in a long run (flashing at negative 1.65 for 1 year expiries).

1W at the money 49.6% delta puts are trading 17% higher than NPV.

The current spot FX is trading at 132.388, our earlier targets achieved at 133.372, for now we expect dips extending up to 131.025 levels in near terms. It is understood that bearish momentum is bolstering as we saw that from delta risk reversal table. Hence, aggressive bears can initiate strategy using ATM puts.

The broader the strike difference between short and long puts, the fewer puts you need to sell to cover the price of the long puts.

But at the same time, the coverage of long-to-short is going to be more difficult in the event of assignment.

So, the recommendation for aggressive bears is to add an extra long on put with 1m expiry to the existing debit put spreads and fresh backspreads can built in capitalizing on overpriced ATM puts on short side with 1w expiries.

Since the option you sell will always be lower on the skew curve it means you are getting a better deal on what you are selling compared to what you are buying.

It makes this strategy a good one if the skew is running a little hot but EURJPY hasn't rolled over that much.

However, on a long term hedging perspective, debit put spreads are advocated as the selling indications are piling up on weekly graph. So buying In-The-Money Puts and to reduce the cost of hedging by financing this long position, selling an Out-Of-The-Money put option is recommended.

Please refer below link for risk reversal nutshell:

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