EUR/JPY Technical Analysis: Two Forward, Two Right Back

2016-11-03 16:35:00

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Talking Points:

EUR/JPY Technical Strategy: Long-term still in down-trend; near-term price action showing bullish characteristics.
EUR/JPY is carving out support at a prior point of resistance (which had also previously been support in mid-October).
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In our last article, we looked at near-term resistance in EUR/JPY showing up at a familiar level of prior support around the price of 114.11. This level is the 38.2% Fibonacci retracement of the ‘Brexit move’ in EUR/JPY, and since that quick drive of panic now more than four months ago, the levels from this Fibonacci retracement have continued to provide usable information to traders.

Earlier this week a widely-awaited Bank of Japan meeting brought no changes to current monetary policy while the bank decreased inflation expectations for the future. Whereas previously the bank had expected to meet their 2% inflation target by March of 2018, just one month before the end of current BoJ Governor Haruhiko Kuroda’s tenure, now the BoJ is looking for inflation to return to 2% ‘in the second half of a period that runs to March of 2019.’ This could be Yen-negative as the BoJ’s more meager expectations for inflation may create the motivation to investigate additional stimulus down-the-road.

In the aftermath of this most recent BoJ meeting, price action in EUR/JPY ran all the way up to set fresh resistance at a higher-high around the 50% Fibonacci retracement of that same ‘Brexit move.’ And since setting that fresh resistance, price action has retraced the bulk of the move to re-establish support at the same 114.11 level, which was most recently resistance (but had previously been support in mid-October).

So, we are currently at a key support level in EUR/JPY. For traders looking to implement bullish strategies, the potential for current support to offer a ‘higher low’ in the event of bullish extension could provide attractive entry parameters. Stops can be set based on how aggressively a traders wants to treat the move, with prior swings at 114.00, 113.25 and 112.60 all offering support potential underneath current price action. Targets could be attractive at 115.38, 116.25, 117.10 and then 118.45.

For traders looking to implement a bearish approach, they’d likely want to wait for this support around 114.11 to give way before investigating bearish positions.