EUR/JPY: Bullish Breakout Begins to Retrace, Support in View
- EUR/JPY bulls showed back up as we opened up Q3 after an aggressive retracement took place through the bulk of the first-half of 2018. While both Euro strength and Yen weakness had come into question at various points over the past few months, the longer-term up-trend in EUR/JPY has come back into play, and the big question now is whether the potential exists for the theme to continue.
- EUR/JPY is now pulling back, and we look at two support areas of interest for trying to catch that next higher-low. The area around the psychological level of 130.00 could be particularly interesting for such a scenario from both a short and longer-term basis.
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EUR/JPY Bulls Come Back After H1, 2018 Retracement
It’s been a strong start to Q3 for EUR/JPY after an aggressive sell-off showed in the first half of the year and continued for much of the period. Coming into 2018, EUR/JPY was in the midst of a strong topside move as markets factored in the potential for growing rate divergence between the two economies. In Europe, odds for near-term rate hikes were getting nudged higher while Japan was largely expected to stay with loose and passive monetary policy for the foreseeable future.
But shortly after the new year got underway, Yen strength began to show up as Japanese inflation started to creep-higher. This theme lasted for the bulk of Q1; but in Q2 another bearish factor for the pair appeared as the Euro finally started to retrace a portion of last year’s gains. That theme of Euro-weakness hastened through May and into June, and this had pushed EUR/JPY below 125.00 after the pair had traded above 137.00 just a few months earlier. After a rather volatile month of June, as the pair was swung in both directions around the ECB rate decision in the middle of the month, EUR/JPY began to trend-higher again and that theme caught a significant gust of continuation over a two-week period with prices climbing back-above the 130.00 psychological level.
EUR/JPY Daily Price Chart: Bulk of H1, 2018 Spent in Retracement, Strength Returns in Q3
Chart prepared by James Stanley
Over the past two trading days, the pair has started to pullback from that bullish breakout, and the big question now is where bulls might re-enter to continue the topside trend. There are two potential areas of interest for such a scenario. For aggressive strategies, the prior swing-low around 130.80 could be interesting for near-term bullish scenarios. This area had provided a bit of swing support last Friday before the trend continued up to fresh highs, and another bounce showed around this area yesterday morning.
A bit deeper is a more attractive area that could be used for longer-term stances, and this takes place in the range that runs from the 130.00 psychological level up to the June swing-highs around 130.35. Support showing in this area opens the possibility of bullish strategies utilizing stops below 129.50, or around the 50% market of the recent bullish move in the pair, and initial targets directed towards 131.29 with secondary targets cast towards the 132.00 psychological level.
EUR/JPY Four-Hour Price Chart
Chart prepared by James Stanley
To read more:
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.