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EUR/JPY Technical Analysis:  It’s Getting Volatile in Here

EUR/JPY Technical Analysis: It’s Getting Volatile in Here

James Stanley, Senior Strategist

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Talking Points:

  • EUR/JPY Technical Strategy: Flat
  • EUR/JPY set a new intermediate-term high yesterday, but persistent selling throughout the Friday session has moved price back to Fibonacci support.

In our previous piece, we noted the higher-lows being carved out in EUR/JPY. With two consecutive days of support at the 38.2% retracement of the secondary move in the pair (shown in black on the below chart, taking the December 2014 high to the April 2015 lows), the beginning stages of a new up-trend had formed. This can be an invaluable trend-recognition tool, as price action will often highlight new trends at a very early stage of the move. EUR/JPY throttled higher after FOMC on Thursday, eclipsing the 137.00 level that had served as the prior swing-high, and thereby further confirming the up-trend as these higher-lows are now accompanied with higher-highs.

EUR/JPY has spent most of Friday giving back this week’s gains, and we’re currently sitting on that same 38.2% Fibonacci level that had provided support on the previous swing. This could be accommodative for long positions, as stops could be placed 50 pips away from current market price to get below the ‘prior swing low,’ and targets could be set at previous resistance intervals of 136.40 (which could offer an approximate 1-to-2 risk-to-reward ratio), or 137 (1-to-3 risk-to-reward ratio). The veracity with which prices moved lower on Friday could give reason to pause, as it’s never comfortable trying to catch a falling knife, even if it does have longer-term support nearby.

Alternatively, traders can take a more conservative approach to long positions by waiting for support to establish itself again north of 135. This would require a wider stop, with a less-attractive risk-to-reward ratio; but that’s what waiting for confirmation entails. For longer-term setups, or setups with wider risk amounts, targets could also be sought at 137.93 in the pair, which is the 50% retracement of the ‘secondary move’ in the pair.

On the short side, breaks below 135 could open the door for breakout positions. Near-term resistance is more than 200 pips away from this level, so risk management would likely need to be taken from intra-day levels, but targets at 133.82 and then 132.05 (confluent level of psychological support as well as the 50% retracement of the ‘big picture’ move taking the 2008 high to the 2012 low).

EUR/JPY Technical Analysis:  It’s Getting Volatile in Here

Written by James Stanley of DailyFX; you can join his distribution list with this link, and you can converse with him over Twitter @JStanleyFX.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.