EUR/JPY Technical Analysis: Stuck in the Middle with Yen

2016-05-11 17:54:00

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Talking Points:

EUR/JPY Technical Strategy: Previously short, limit hit, remainder taken out at breakeven stop.
EUR/JPY price action is in the middle of near-term highs and lows, offering little clarity on trend direction.
If you’re looking for additional trade ideas, check out our Trading Guide and if you’re looking for shorter-term ideas, check out our SSI indicator.

In our last article, we looked at an aggressive short-side setup in EUR/JPY in the effort of playing down-trend continuation off of a key Fibonacci level. And for the first couple of days after that article was published, that was precisely what we saw, with EUR/JPY setting another new short-term low just after Friday’s abysmal Non-Farm Payrolls report out of the United States, tagging the limit at 122.00 before setting a new low at 121.45.

But to open the new week, the Yen weakened massively on the back of comments from The Japanese Finance Minister, Taro Aso, remarking that ‘one-sided movements’ in the currency wouldn’t be tolerated. This was widely inferred to mean that the Bank of Japan would intervene in the spot market should the Yen continue with its extreme bout of strength, threatening to further undo any semblance of a ‘recovery’ that’s been seen in the Japanese economy.

While this may not inspire a long-lasting bout of Yen weakness, these comments and the prospect of BoJ intervention has been enough to quell strength in the currency, at least for now; and this has created a retracement in the prior move that traders may be able to use in the not-too-distant future.

Longer-term price action is still bearish in the pair, and this will likely persist until the prior swing high at 126.50 is taken out. This was the inflection point just ahead of the last BoJ meeting when the bank held policy flat. Near-term, EUR/JPY is giving the appearance of higher-low support, just above prior resistance at 123.50, which is the 23.6% retracement of the prior major move (March 2016 low to high).

Traders can use near-term levels to define stance in the pair moving forward. The short-term swing high is at 124.40, and this is a key level as this is the 38.2% retracement of the prior major move mentioned above. The near-term swing low is the bottom of a morning-star formation on the 4-hour chart, just above the 23.6% retracement of the same move at 123.50.

Traders can guide strategies to bullish should price action move above 124.40; and should price action break below 123.50, traders can look to sell resistance near prior areas of support (like 123.50).