Talking Points:
- EUR/JPY continues to test a longer-term support zone that’s held the lows in the pair since last September.
- Bulls have been getting increasingly more bashful after each of those support tests, helping to produce a series of near-term lower-highs that go along with those deeper tests of support.
- 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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Longer-Term Support Still Holding, For Now
It was just last Friday that we looked at what was an aggressively bearish move down to a long-term area of support in EUR/JPY. This zone of support came into play in September of last year and has largely held the lows in the pair ever since. But after Friday’s test, price action continued-lower this week to see yet another test within this zone on Wednesday; and after a reaction produced yet another lower-high, we’re tilting back into this area again on Friday.
EUR/JPY Daily Chart: Deeper Test Within Longer-Term Support Zone
Chart prepared by James Stanley
Given the fact that this support zone has largely held up to this point - that should be a positive. But it’s what has happened after that support came into play that begins complicating the bullish approach, and that’s the fact that we’ve seen a series of lower-highs build in the pair as these support tests continue to get a bit deeper. On the hourly chart below, we can see sellers getting a bit more aggressive, unwilling to wait for stronger moves before taking on bearish exposure.
EUR/JPY Hourly Chart: Lower-Highs Accompany Deeper Tests of Longer-Term Support
Chart prepared by James Stanley
Moving Forward
On Wednesday, we looked at the possibility of bearish plays using prior areas of resistance for short-term entries. Given that we’re currently looking at a Friday ahead of a holiday-weekend in the United States, traders would likely want to be a bit more prudent with short-term strategies, particularly in markets that appear to be undergoing some state of change.
We’re looking at two potential areas of lower-high resistance on the below chart, each of which can work with targets cast down to the current zone of longer-term support. If we do see a bearish break of this longer-term support zone before either of these resistance levels come into play, the pair can be revisited in the early-portion of next week to incorporate that new-found bearish momentum. But, until that area breaks, traders should remain on-guard as EUR/JPY carries the potential for a face-ripping rally, and stops should be set accordingly.
EUR/JPY Hourly Chart with Potential Areas of Short-Term Resistance
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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