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EUR/JPY Technical Analysis: Trend-Line Bounce From Fibonacci Support

EUR/JPY Technical Analysis: Trend-Line Bounce From Fibonacci Support

James Stanley, Strategist

Talking Points:

- Both the Euro and the Japanese Yen will see rate decisions from their respective economies this week, and each Central Bank appears to have a bit of operating room to offer dovish outlays to markets. This could bring on weakness in both the Euro and the Japanese Yen.

- Given prevailing trends, Yen-weakness could be much more promising to work with for FX traders, as a stimulus exit may not be too far away for the ECB as they investigate option for after the current program is set to expire in September. The Bank of Japan, on the other hand, has an open-ended program and has shown no signs of stopping or slowing QE. This keeps the topside of EUR/JPY as attractive in the near-term.

- 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

Yen Weakness Returns in Q2

The first quarter of this year was fairly dramatic for the Japanese Yen. The Japanese currency continued to carry weakness as we walked into 2018, and this helped to bring a fresh two-year high into EUR/JPY as we opened the door into February. But the rest of February was not so kind to that trend, as a spate of Yen-strength began and ran into March, driving a reversal into the previously robust up-trend in EUR/JPY.

As this was happening, a key zone of prior support started to come into question. This zone runs from 131.43 up to 132.05, which is the 50% retracement of the 2008-2012 major move in the pair, and this zone had helped to hold support in EUR/JPY for the latter-four months of 2017. As prices reversed in February, support in that zone began to wane until, eventually, this area became resistance. We even looked at a short-side setup off of this area as we walked into Q2.

EUR/JPY Daily Chart: Support Becomes Resistance (And then Back to Support Again)

eurjpy daily chart

Chart prepared by James Stanley

April, however, has seen price action re-engage above this area; and as we wrote two weeks ago, this keeps the door open for bullish strategies. Since then, prices have found a bit of support on an upward sloping trend-line taken from the late-March, early April swing-lows.

EUR/JPY Four-Hour Chart: Bullish Trend-Line From March/April Lows

eurjpy four hour chart

Chart prepared by James Stanley

February Highs Yet to Be Broken

We looked into the topside of the setup a couple of different times since prices have moved back above this key zone, most recently ahead of last week’s open. And at this stage, we’ve seen a hold of support as strength has started to come back in EUR/JPY, but what we haven’t yet seen take place was a break to fresh highs. Prices continue to hold below the February 20th high of 133.06, and this offered another element of resistance just last week. For traders looking to take a more conservative stance with the setup, awaiting a topside break of this level could make the prospect of bullish continuation look much more likely. A top-side break of 133.06 exposes the Fibonacci level and prior area of support at 134.41.

EUR/JPY Four-Hour Chart: Resistance at 133.06 Remains

eurjpy four hour chart

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.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- 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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