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EUR/JPY Technical Analysis: 4-Hour Chart Showing Fresh Trend Potential

EUR/JPY Technical Analysis: 4-Hour Chart Showing Fresh Trend Potential

2016-07-14 17:27:00
James Stanley, Strategist
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Talking Points:

  • EUR/JPY Technical Strategy: Aggressive top-side reaction showing higher highs and lows on the 4-hour chart.
  • After recent events in Japanese elections, pressure may be removed from the long-side of the Yen, at least temporarily.
  • If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.

In our last article, we looked at the aggressive down-trend showing in EUR/JPY with a caution towards chasing the move much lower without at least some evidence of resistance showing. That resistance never showed up, and over the weekend a significant win in Japanese elections gave Prime Minister Shinzo Abe a super-majority in the upper-house of parliament. As we discussed on Tuesday, this could be a game-changer, at least in the near-term for Japan and the Yen, as the threat of a massive increase in stimulus from the country with lessened political resistance could be enough to offset risk aversion flows.

Price action in the Yen has been extremely bearish this week on the heels of those election results, and given that we’ll likely see investors continuing to attempt to position-in ahead of any potential BoJ action, this move of Yen weakness could have near-term staying power.

On EUR/JPY, the level of 115.37 is especially interesting. This is the 61.8% retracement of the ‘Abe-nomics’ move in EUR/JPY, taking the low set in 2012 just before he recapture the PM post, to the highs in 2014. This price area had also offered swing-support in the post-Brexit referendum, we had discussed using this level as potential resistance a couple of weeks ago, but that never showed up. And when price action finally did cross above this line-in-the-sand, it ended up becoming support shortly thereafter.

Also of interest in this zone of potential support is a projected trend-line that can be found by connecting the low from the year 2000 to the low of March 12th, 2011 (shown in purple on the below chart).

Moving forward, traders can look for top-side entries by waiting on higher-lows to develop. Between 116.20-116.50 is an area nearby current price action in which traders with aggressive stances could investigate for bullish entries; and a bit below we have the zone between 115.00-115.50 straddling that Fibonacci level at 115.37. Should support develop in either of these regions, traders can look at top-side triggers with targets cast towards the psychological level at 117.50, the price action swing high at 118.00, and then the Fibonacci level at 119.90, which is just 10 pips shy of the 120-big figure while also being the 61.8% retracement of the ‘big picture’ move in the pair, taking the low from the year 2000 to the highs of 2014.

EUR/JPY Technical Analysis: 4-Hour Chart Showing Fresh Trend Potential

Charts prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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