Talking Points:

- EUR/JPY Set a fresh yearly high just a week ago, and has since sold-off in an aggressive manner.

- Prices had moved than 500 pips-lower from last week’s high, and the bearish momentum that showed-up this week should not be discounted or taken lightly.

- If you’re looking to improve your trading approach, check out our Traits of Successful Traders research. And if you’d like more of a basic primer for the FX market, check out our New to FX Guide.

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EUR/JPY: From Fresh High to Hard Reversal in a Week’s Time

It was a brutal week in EUR/JPY, and this comes after the pair set a fresh two year high just last Friday. While no specifically negative factors showed-up out of the Euro-Zone this week, the global run of risk aversion did not leave EUR/JPY unscathed, and sellers came into the pair in droves to reverse a month worth of gains this week.

To open this week, we asked if some element of support would show off of prior levels of interest around 136.00 and 135.00. The definitive answer to that question was ‘no’ as sellers pushed the pair below 135.00 and even beyond the 134.41 Fibonacci level on Tuesday morning; and after a quick bounce the selling continued to drive EUR/JPY down to fresh 2018 lows.

EUR/JPY Daily Chart: A Rough Week After Friday’s Fresh Two-Year High

eurjpy daily chart

Chart prepared by James Stanley

The past two days have produced a break of the bullish trend-line that had helped us catch the January swing-low, and price action is now interacting with another area of prior support that runs from the price of 131.40 up to the Fibonacci level at 132.05. This Fibonacci level is the 50% marker of the 2008-2012 major move, and this price had helped to hold support throughout Q4 as the bullish Euro trend took a breather. While the potential for that support to hold up this bearish momentum remains, the pace of this week’s sell-off is notable and should not be summarily dismissed. Below, we’re looking at the hourly EUR/JPY chart as bids and support continued to evaporate as this week wore on; all the way until the long-term zone of support began to come into play around 132.00:

EUR/JPY Hourly Chart: Bearish Momentum Takes Over, Drives to Long-Term Support

eurjpy hourly chart

Chart prepared by James Stanley

As we head into next week, traders will likely want to let some price action fill-in on EUR/JPY before taking a stance in either direction. Buying from here, and fading this week’s bearish momentum can be akin to trying to catch a falling knife. The other side, looking to sell after this week’s bearish move while prices are near longer-term support could very much be trying to chase; so standing flat is prudent until more information becomes available.

If we do see some element of support develop within or around this zone in the early portion of the week, bullish prospects remain and traders can look to play a reversal of this near-term bearish momentum. If, however, prices do not find support in this zone and this leads us to fresh five month lows, then risk aversion is likely here and traders can look into short-side momentum setups as the pair sinks deeper towards the 130.00 psychological level.

To read more:

Are you looking for longer-term analysis on the Euro or Japanese Yen? Our DailyFX Forecasts for Q1 have a section for both EUR/USD and USD/JPY. We also offer a plethora of resources on our EUR/JPY page, and traders can stay up with near-term positioning via our IG Client Sentiment Indicator.

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

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