Talking Points:

- EUR/JPY put in another test of the longer-term zone of support this morning, after which a rally has driven prices up to find a bit of resistance off of the January swing-low.

- While longer-term support remains, the rate with which this bearish drive has come into EUR/JPY is notable, and traders should look to adjust as a bigger move may be on the horizon.

- 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 Bounce From Longer-Term Support Finds Lower-Highs

Last week saw the illustrious trend in EUR/JPY finally began to tip-lower. Prices gave up a month of gains last week, and price action ended the week on an interesting note after bouncing from a key zone of longer-term support. This zone, which comprises the area that runs from 131.41-132.05 had helped to hold the lows in the pair throughout Q4, and this started to come into play again last week after a rather strong bounce carried into the early portion of this week.

EUR/JPY Hourly: Friday’s Support Bounce (in Blue) Followed by Lower-Lows, Highs

eurjpy hourly chart

Chart prepared by James Stanley

The rate with which this weakness has come into EUR/JPY is notable. While the longer-term support zone still remains, the momentum of this bearish drive has been significant, and this support zone may not hold for long as bearish tests have been driving deeper into this area and bears have shown no signs of yet giving up.

EUR/JPY Eight-Hour Chart: Aggressive Sell-Off Past Two Weeks

eurjpy eight hour chart

Chart prepared by James Stanley

Moving Forward

To put into context what we have above: A longer-term trend has been aggressively retracing; and this puts forth two possibilities for traders as we move forward on EUR/JPY. Either a) look for a reversal of short-term momentum into the direction of the longer-term bullish trend or b) look for a continuation of momentum that may eventually take-out that longer-term zone of support.

For the bullish approach: traders would likely want to allow for the pain chain that’s shown on shorter-term charts to first be broken to get an idea that bulls may be returning on a longer-term basis, allowing for a bit more confirmation after this morning’s rip-higher. A break above 133.79 would make the prospect of bullish continuation look considerably more attractive, as we’d then have shorter-term higher-highs to go along with the bullish break of the bearish trend-line.

For the bearish approach, traders can look to near-term resistance levels for entry and stop placement. We’re seeing some element of selling coming-in around the January swing-low of 133.01, and a bit higher we have two additional lower-highs to work with at 133.36 and 133.79, respectively.

eurjpy hourly chart with resistance applied

Chart prepared by James Stanley

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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