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EUR/JPY Sets Fresh Five-Month Low; Support Zone Violated

EUR/JPY Sets Fresh Five-Month Low; Support Zone Violated

James Stanley, Senior Strategist

Talking Points:

- EUR/JPY has just set fresh five-month lows after the sell-off that started a couple of weeks ago took out a key zone of support in the pair that saw multiple support test since last September.

- This comes on the heels of another stronger-than-expected Japanese CPI print, and this could be opening the door to a longer-term run of Yen-strength. Potential support in EUR/JPY around the 130.00 psychological level makes the prospect of short-side exposure on a Friday a rather unattractive scenario; but should another lower-high print next week, that door could quickly open to swing and intermediate-term stances.

- 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.

To receive James Stanley’s Analysis directly via email, please sign up here

EUR/JPY Takes Out Support Zone

Over the past couple of week’s we’ve been following a rather pensive test of a long-term support zone in EUR/JPY. Throughout most of last year, EUR/JPY remained in a bullish trend that kept some very clean characteristics; key of which was what happened around the October ECB rate decision. This is when the ECB extended their stimulus program, disappointing the hopes that had built for some type of announcement around taper or stimulus exit. This led to rather noticeable support breaks in pairs like EUR/USD; but in EUR/JPY, prices merely moved down to support, at which point buyers showed up, and the lows held until bullish price action was able to take over in December.

EUR/JPY Daily Chart: Support Zone, Five-Month Lows Getting Taken-Out

eurjpy daily chart

Chart prepared by James Stanley

Selling at Lows on a Friday Can be Challenging

This support zone began to come back into play two weeks ago, on a Friday as a run of Yen-strength ahead of market closed created a dizzying sell-off in the pair. We warned that the bearish momentum that had accompanied that move should not be trifled with; and at the very least, buyers should away for some element of clarity on a return of bullish price action before looking to press longs.

That return of bullish price action never really happened, as prices pushed deeper into that support zone as last week’s price action got underway. This led to a continuation of lower-highs printing in EUR/JPY, and last Friday we looked at an area of resistance around a prior swing-low that could open the door for short-side setups. That level around 133.01 came-into play this week, helping to mark this week’s swing-high in the pair.

EUR/JPY Hourly Chart: Sellers Show-Up at 131.01 Resistance, and Then Take-Over

eurjpy hourly chart

Chart prepared by James Stanley

At this point, we have fresh five-month lows in the pair. With long-term support now starting to give way, this could lead to a deeper bearish response as prices move-lower to test support around the 130.00 handle.

Establishing short-side exposure here can be challenging: We’re a mere few hours away from market close for the week, and EUR/JPY is sitting near five-month lows, fair divorced from prior reference points of resistance. This leaves the pair without an attractive setup at the moment, and we’ll review EUR/JPY price action early next week to establish a more workable game plan.

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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Contact and follow James on Twitter: @JStanleyFX

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

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