3 Conviction Forex Trade Ideas May 5th

Below is a summary of three high-conviction forex trade ideas for EUR/USD, USD/JPY, and EUR/JPY. These setups blend recent macroeconomic drivers (inflation surprises, central bank policies, geopolitical risks) with technical analysis (trendlines, Fibonacci retracements, moving averages, support/resistance). Each trade includes suggested entry and exit levels (targets and stop-loss), the trade direction (long or short), and a confidence ranking based on the alignment of fundamental and technical factors.

Forex Trade Ideas May 5th:

EUR/JPY – Short (Highest Conviction)

Rationale: We rank the EUR/JPY short as our highest confidence trade. The Euro-Yen cross is pressured by a confluence of fundamental and technical factors favoring JPY strength and EUR weakness:

• Macroeconomic Context: Eurozone inflation surprised to the upside in April, with core inflation rising to 2.7% (above expectations of 2.5%). However, this has not derailed expectations for continued European Central Bank (ECB) easing. The ECB is still expected to cut rates further (markets pricing ~60 bps of cuts by year-end), which tempers Euro strength. In contrast, the Bank of Japan (BoJ) struck a dovish tone at its recent meeting, pausing rate hikes and downgrading its growth outlook (FY2025 GDP forecast cut to 0.5% from 1.1%). This normally weakens JPY, but geopolitical risks are tipping the scales. Heightened tensions – from Middle East conflicts (missile attacks, war threats) to remarks by Russia’s leadership – have boosted safe-haven demand for the Japanese Yen. In risk-off scenarios, JPY’s haven appeal tends to overshadow Japan’s domestic policy dovishness. Thus, fundamentally, the Euro faces a dovish ECB and the Yen is bid on safety flows, both pointing toward downside for EUR/JPY.

• Technical Analysis: EUR/JPY recently reversed from a major resistance zone. It failed to breach ¥164.80 – a level that capped the pair’s rally and prompted a bearish pullbackeconomies.com. This area aligns with the upper boundary of a rising channel (~164.5/164.8) and the prior multi-month high (around ¥164.9 from late 2024)talkmarkets.com. The rejection at this ceiling suggests a potential double-top or at least a short-term peak. Initial support at ¥163.25 was tested; a firm break below ¥163.2 would confirm a downside breakout. Momentum oscillators are turning down from overbought levels (e.g., daily RSI easing from bullish extremes), and stochastic sell signals hint at a correction. Key levels: Below ¥163.25, the next supports are around ¥162.45 and ¥161.90economies.com. These correspond to recent swing lows and the 50-day EMA vicinity (the 50-day EMA was ~¥160.1 in mid-March and rising, so current ¥161-162 region). A deeper drop could target the lower channel boundary near ¥159.30 or even the March low (¥155.5) if risk aversion intensifies. On the upside, ¥164.80 remains the pivot resistance; a move above ~¥165 would invalidate the bearish bias, potentially resuming the uptrend toward ¥166+.

• Trade Setup: Short EUR/JPY at a break below ~163.20, aiming for ¥162.00 initially (recent minor support) and an extended target of ¥160.00 if the decline gains traction. Use a stop-loss around ¥165.00, just above the 164.80 resistance zone, to guard against an upside breakout. This trade is top-ranked because both fundamentals (Euro softness + JPY haven demand) and technicals (rejection at resistance, bearish momentum) align for a downward move. Confidence: Highest. Euro’s “inflation hesitation” versus JPY’s safe-haven bid creates a strong conviction short.

Sources: Euro inflation and ECB outlook; BoJ dovish guidance and outlook downgrade; Geopolitical risk boosting JPY; Technical levels for EUR/JPY.

EUR/USD – Long (High Conviction)

Rationale: The EUR/USD long setup ranks second, with a bullish bias driven by U.S. dollar weakness and a slightly improving Euro outlook:

• Macroeconomic Context: The Euro is underpinned by the recent inflation surprise in the Eurozone, which came in a touch higher than expected (headline 2.2%, core 2.7%). This suggests underlying price pressures remain and could slow the pace of ECB rate cuts. Indeed, traders trimmed expectations of aggressive easing – now pricing about 60 bps of cuts by year-end, down from earlier bets. While the ECB is still easing, the inflation uptick means the ECB might not turn overly dovish beyond what’s priced in, lending modest support to the Euro. On the other side, the U.S. dollar is weakening ahead of the FOMC. The Federal Reserve is widely expected to hold rates steady at this week’s meeting, remaining in “wait-and-see” mode despite strong labor data. Market sentiment is that the Fed will not cut until later in the year (fed funds futures imply 3-4 cuts by year-end), so there’s no new hawkish catalyst for USD. In fact, the greenback is on the back foot due to heightened economic uncertainty around President Trump’s erratic trade policies. Trump’s recent tariff threats (e.g. 100% tariff on foreign films) have fueled concerns of economic fallout, keeping the USD subdued. Moreover, safe-haven flows are favoring currencies like JPY and CHF over the dollar in this phase. With the Euro holding firm and the USD broadly weaker, the fundamental bias tilts bullish for EUR/USD.

• Technical Analysis: EUR/USD is attempting to break out of a consolidation above a key support. The pair found buyers around $1.1265 late last week – a three-week low and a notable support zone. That low coincided with the 100-period moving average (4H chart) breakdown, which briefly gave bearish traders control. However, the picture has improved: oscillators on the daily chart remain in bullish territory and shorter-term (hourly) momentum has turned up. The pair has climbed back above $1.1300 and is gravitating toward the $1.1375 area, which is a pivotal level – it was a support breakpoint and now acts as immediate resistance. Just above lies the $1.1400 psychological level. A sustained break above 1.1375–1.1400 would confirm that the recent pullback is over and open the door to further gainsfxstreet.com. The next upside hurdle is around $1.1425–1.1430, which marks an intermediate resistance (recent swing highs). Beyond that, the pair could aim for the $1.1500 region, a round number and near the highs from mid-April. Notably, EUR/USD had reached ~1.1575 at its peak last month before correcting; while that multi-year high may not be immediately in play, it shows the broader uptrend scope. On the downside, support remains at $1.1290–1.1300 (recent range floor). A drop below $1.1265 (last week’s low) would invalidate the bullish setup, potentially accelerating declines to $1.1200 or lower. The 200-period SMA on the 4H chart (~$1.1125) is a deeper support if things turn bearish, but at present the bias is upward. Importantly, Fibonacci levels line up with these markers: e.g., $1.1420 is near a 61.8% retracement of the late-April pullback, where sellers have emerged in recent attempts.

• Trade Setup: Long EUR/USD on a clear break above $1.1375 (or on minor dips above $1.1300 with confirmation of support). An entry around 1.1340–1.1350 is ideal once momentum builds. Targets: $1.1425 as an initial profit-taking level, with an extension toward $1.1500 if bullish momentum persists. Stop-loss: around $1.1290, just below the 1.1297 support pivot (and below the 20-day SMA area), to avoid whipsaw if the pair reverses. This stop is also under last week’s breakdown level to ensure we’re out if the market resumes a downtrend. Confidence: High. We have strong rationale (Euro’s inflation-fueled resilience + USD weakness into FOMC) coupled with a clear technical breakout level. We rank it just below EUR/JPY because the ECB’s ongoing easing means Euro strength is a bit contingent on risk sentiment; nonetheless, the setup is robust with a favorable risk/reward profile.

Sources: Eurozone inflation surprise and ECB cut expectations; Fed on hold and USD softness; Key EUR/USD technical levels (1.1340 breakout, 1.1425 resistance, 1.1265 support).

USD/JPY – Short (High Conviction, but More Nuanced)

Rationale: The USD/JPY setup is also high conviction but carries more nuance, hence ranked third. We favor a short (USD/JPY down) bias, reflecting a cautiously optimistic view on JPY strength reasserting itself:

• Macroeconomic Context: The Yen’s drivers are mixed. On one hand, the BoJ’s stance last week was decidedly dovish. By leaving its policy rate at 0.5% and pausing on further tightening, the BoJ sent USD/JPY higher initially. The central bank emphasized external risks (U.S. tariffs impact) to justify delaying any rate hikes – effectively pushing out Japan’s normalization timelineig.com. This diminishes JPY yield appeal in the near term and normally would weaken the Yen. On the other hand, safe-haven flows into JPY are picking up, thanks to global uncertainties. Concerns over trade (despite some U.S. trade deal progress, uncertainty with China remains) and fresh geopolitical flare-ups (Middle East tensions, Russia-Ukraine risks) are creating demand for safe assets. The Japanese Yen has attracted buyers for two straight days amid risk aversion. Meanwhile, the US Dollar’s own outlook is somewhat soft: although April’s Non-Farm Payrolls were strong (177K jobs vs ~130K expected, unemployment steady at 4.2%), the data only reinforced that the Fed will hold rates for now and likely cut later in 2025. With U.S. yields off their highs and President Trump’s trade policy introducing volatility (100% tariffs on certain imports, etc.), the dollar hasn’t capitalized on good data. In fact, USD/JPY is trading off recent highs as the USD sees a “modest downtick” and investors stay sidelined ahead of the FOMC meeting. Summing up fundamentals: BoJ dovishness provides a floor under USD/JPY, but safe-haven JPY demand and U.S. policy uncertainty act as a ceiling. We lean towards the safe-haven narrative dominating in the short term, meaning downside for USD/JPY (especially if any risk-off shock hits).

• Technical Analysis: The technical picture suggests rally fatigue and a potential downtrend resumption unless bulls make a decisive breakthrough. Last week, USD/JPY rebounded from a multi-month low (~¥139.9) but struggled around ¥145, which is the convergence of several resistances. Notably, ¥145 is near the descending channel top on the daily chart and close to the 200-day Simple Moving Average (SMA) – the pair remains below that long-term average, so the broader trend is still down. Indeed, analysts note that downward pressure persists while USD/JPY is below the 200-day SMA. Bulls attempted to clear the 50% Fibonacci retracement of the March–April drop (around ¥145.90–146.00 area) but failed to find acceptance above it. This fib level also coincides with the 200-period SMA on 4H and prior highs, making ¥146.0 a critical resistance threshold. On the downside, immediate support lies at ¥143.75–143.70 – last Friday’s swing low. This area has held as support during the recent consolidation; a firm break below ¥143.70 would signal that bearish momentum is returning. In that event, the pair could slip to the next support at ¥143.30, and then the ¥143.00 round number. Below 143, the 23.6% Fibonacci retracement of the rebound sits around ¥142.65, which would be a logical near-term downside target. If risk aversion intensifies, a deeper decline toward ¥140.00 is possible – recall ¥139.90 was the recent multi-month low and a significant support floor. Momentum indicators: Daily oscillators are still in positive territory but have flattened, and on shorter timeframes, bearish divergence is emerging as price retreated from 146 to 144. Also, as a gauge of trend strength, so long as USD/JPY stays under the 200-day SMA (~¥144.5–145), the bias skews downward. Only a clear break above ¥146 would negate this and suggest a bullish extension toward the next resistance at ¥148.2-148.5 (the top of a prior range) – this is our invalidation level for the short bias.

• Trade Setup: Short USD/JPY on a break below approximately ¥143.70 (to confirm that support is giving way and downward momentum is building). Alternatively, one could sell into minor rallies toward ¥145 if the pair fails to close above the 200-day MA. Target an initial move to ¥142.70 (the 23.6% fib/retracement support and recent pivot). If the decline continues, look for ¥140.00 as an extended target, given its importance as a psychological level and proximity to the prior low. Stop-loss: place a stop around ¥146.00 (just above the 50% Fib and key moving average resistance). This stop level is slightly beyond the 4-hour 200-SMA and the failed breakout point, ensuring that if the pair does rally past that, the bearish thesis is likely wrong. Confidence: High, but slightly lower than the other two setups due to the cross-currents in play. The trade is bolstered by the technical downtrend and risk-off JPY flows, but we remain cautious given the BoJ’s dovish surprise (which could limit Yen strength on any risk-on days). Thus, position sizing and confirmation of breakdown are important. Overall, we expect the safe-haven dynamics and technical resistance to cap USD/JPY, making this a favorable short opportunity unless global sentiment improves markedly.

Sources: BoJ’s dovish pause and impact; Safe-haven demand for JPY; Strong U.S. NFP vs Fed hold; USD/JPY technical trend and key levels (200-day SMA ~145, resistance ~146, supports 143.70/143.00/142.65).

Conclusion: These trade ideas marry the latest economic developments with price action signals to yield high-probability setups. We have ranked them by confidence: the EUR/JPY short stands out with the clearest fundamental convergence (Euro weakness vs Yen strength), the EUR/USD long benefits from USD softness and a potential breakout, and the USD/JPY short, while promising, requires mindful monitoring of news (trade talks, FOMC, etc.) due to its mixed drivers. As always, risk management is crucial – the specified stop-loss levels help protect against adverse moves, and the targets offer attractive reward potential. By keeping an eye on key levels – such as EUR/USD $1.1375 resistance, USD/JPY ¥144/¥146 for trend signals, and EUR/JPY ¥163.25 support – traders can gauge the validity of each setup. Each of these high-conviction trades is backed by a blend of macro fundamentals and technical confirmation, aiming to provide professional traders with a well-rounded strategy for the current forex landscape.

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