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EUR/JPY Technical Analysis: Bigger Picture Breakdown Potential

EUR/JPY Technical Analysis: Bigger Picture Breakdown Potential

Talking Points:

- EUR/JPY lurched lower in the immediate wake of the ECB’s announcement to extend their stimulus program; and after a brief bout of support, sellers have continued to hit EUR/JPY.

- EUR/JPY Sentiment is currently at -2.36:1, and this is a bullish indication. When/if this flips, the case for a bigger-picture bearish breakdown can be strengthened. Click here to access IG Client Sentiment.

- Want to see how Euro and/or Yen are holding up to our DailyFX Q4 forecasts? Click here for full access.

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In our last article, we looked at EUR/JPY after a key level of resistance came-in around 134.41, just ahead of the October ECB rate decision. This was a key level for a number of reasons, as this is the 61.8% retracement of the 2014-2016 major move in the pair; but perhaps most importantly, this price had helped to turn around EUR/JPY’s bullish advance in September. Over a two day sequence traders had tried to break prices-higher, each of which failed. And when price action re-approached this level a month later, the same began to show as sellers populated the pair and started to push prices lower. As we advised, even though this was a fresh one-year high in EUR/JPY, traders would likely want to wait before trying to push the long side ahead of a critical ECB meeting.

EUR/JPY Four-Hour: Resistance Holds, Price Travels Back to Support Zone post-ECB

Chart prepared by James Stanley

In the immediate wake of ECB, prices moved down to the zone of support that we’ve been following that runs from 131.71-132.05. The level of 132.05, in particular, is interesting as this is the 50% retracement of the 2008-2013 major move. This zone of support has helped to hold the lows in EUR/JPY for going on six weeks now. But rather than bouncing as we’d seen for much of the previous seven weeks, price action drove deeper. Bulls came-back shortly after, but the fact that support was beginning to give was notable.

EUR/JPY Daily: Prices Begin to Slip Below Support Temporarily post-ECB (purple)

Chart prepared by James Stanley

After prices bounced higher following that slight breach of support, sellers remained on the sidelines waiting for a more adequate point of re-entry. That appeared around the swing-low in EUR/JPY that had showed around 133.10. And after a couple of attempts to take out that resistance faltered, prices moved-lower to, again, set another fresh lower-low. This gives us a lower-high below the prior inflection at 134.41, and if bears can continue driving below that prior zone of support, the door can open the door to short-side setups in the pair.

EUR/JPY Four-Hour: Support Slipping, Lower-High at Prior Swing-Low

Chart prepared by James Stanley

Traders looking to take on short-side exposure in EUR/JPY can look for resistance below the prior swing-high around 133.10. This would be a second ‘lower-high’, and this can open the door for bigger-picture continuation of this recent bearish trend. On the chart below, we’ve identified a zone in orange that straddles the psychological level around 132.50, with the benefit of such an area being the ability to lodge stops on short-side positions above that prior swing-high. We’ve also added four points of prior support/resistance, each of which can be incorporated as profit targets on short-side plays.

EUR/JPY Four-Hour: Subordinated Support Applied, Lower-High Resistance Potential ~132.50

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.