Talking Points:
- EUR/JPY Technical Strategy: Short, Profit target at 132 met on Friday.
- The pair continues to show down-trending tendencies; but a recent inflection off of a major support level should exude caution to traders looking to get short.
- To time entries into EUR/JPY, we’ve recently rolled out real-time SSI on our updated DailyFX 4.0 page.
In our last article, we looked at a short-side setup in EUR/JPY after the European Central Bank’s disappointing December statement had provided significant retracement in Euro-pairs across-the-board. As we mentioned in that previous posting, this enormous move higher provided an opportunity for traders to essentially pick on a Central Bank dichotomy between Europe and Japan.
The big portion of the most recent move came on the Bank of Japan’s announcement on Friday – as prices ran right to that 133.56 Fibonacci resistance level before plummeting lower by 275 pips to catch new support off of the 131.00 psychological level. This level at 133.56 is the 50% Fibonacci retracement of the most recent major move, and of recent, has been somewhat of a barometer of trend in EUR/JPY. Traders can use this in their approach on the pair moving forward by letting prices move higher in order to place stops outside of this level for upcoming short positions. The difficulty in doing so now is that traders would need to absorb a ~140 pip stop, which may be too wide considering nearby support is at 131.00. This wouldn’t even offer a 1-to-1, and in a pair that’s as volatile as EUR/JPY, that can be a deal-breaker.
However, if this confluent zone of support in the 132-region continues to hold, this could bring prices higher so that a stop above 133.56 might not be out of the realm of possibility. The level of 132.50 becomes especially interesting for this purpose, as it had been prior support before the Friday announcement drove the pair lower. This is also a major psychological level, and should prices rise to 132.50, traders can look for resistance in order to wedge that stop above the 133.56 Fibonacci level.
On the profit target side, 131.00 is an obvious level as this is a psychological level as well as recent swing-low support; but after that, another psychological level at 130.00 could set a secondary profit target, followed by 129.45, which is the 50% Fibonacci retracement of the ‘big picture move’ in the pair, taking the 2000 low to the 2008 high. Historically, this has been a huge zone of support/resistance on EUR/JPY, so should this give way – traders can then target the 2015 low at 126.00; and should this theme continue to develop throughout 2016, levels at 120 may eventually come into play. But for now, look for resistance.
Created with Marketscope/Trading Station II; prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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