EUR/JPY Technical Analysis: Ranging within Fibonacci Structure

2016-09-14 16:26:00

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Talking Points:

EUR/JPY Technical Strategy: Long-term down-trend, intermediate-term range-bound.
EUR/JPY has continued to respect the support level identified last week, but has been unable to catch a lasting bid to drive prices beyond resistance.
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In our last article, we looked at EUR/JPY just ahead of the most recent European Central Bank rate decision. We noted the recent breakout of the prior range, with new support showing up around old resistance; and we advised that should the ECB elect to ‘keep some powder dry’ by not making any moves at that meeting, EUR/JPY could catch a bid as QE bets priced-out of the market. And that is pretty much what happened, although resistance came-in ~150 pips above support, and EUR/JPY has yet to show another top-side breakout as the pair has simply built into another range. On the chart below, we’re looking at the new range that’s showing with recent price action.

Chart prepared by James Stanley

Of particular note are the support and resistance levels that are defining this range, which can be found by drawing a basic Fibonacci retracement over the ‘Brexit-move’ in the pair, taking the 6/24 high to low. The 50% retracement of this Fibonacci retracement is helping to define resistance while the 38.2% retracement of the same move is helping to set support. Just 22 pips below that resistance boundary of the 50% retracement is another key Fibonacci level, as the 61.8% retracement of the ‘Abe-nomics’ move in the pair is sitting at 115.37. This can help traders looking to trade the range in EUR/JPY by showing risk levels for stop placement.

However, those looking to trade a range in any Yen-pairs would likely want to note the widely-awaited Bank of Japan rate decision on the docket for next Tuesday. Longer-term, EUR/JPY is building a series of higher-lows since setting that ‘panic’ low during the Brexit referendum. For those looking to sell Yen around the upcoming Bank of Japan decision, this could be an attractive way to do it if near-term support of the current range shows up again around 104.08; meaning traders may want to approach this range with a one-sided bias in the near-term.