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EUR/JPY Bounce Up to Fibonacci Resistance After Early-Month Breakdown

EUR/JPY Bounce Up to Fibonacci Resistance After Early-Month Breakdown

2018-08-22 18:00:00
James Stanley, Currency Strategist
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Talking Points:

- It’s been a rather active month already in EUR/JPY, and we still have more than a week of price action ahead of month-end. A bearish breakout that enveloped the pair’s price action in the first half of August has taken a step back after last week saw support print at 125.00, similar to what happened in late-May.

- With prices now fast approaching prior support, the big question is whether bears can re-emerge to retain the bearish trend in the pair. We looked at EUR/JPY as one of our FX Setups for the Week of August 20, 2018, and the first area of resistance potential has been broken thru with a minimum of stall or slowdown, setting the stage for a re-test of the 128.52 Fibonacci level.

- DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the Euro or the Japanese Yen? Check out our IG Client Sentiment Indicator.

EUR/JPY Bounces From 125.00 After Bearish Breakout in Early-August

It’s been a climactic month so far for the Euro. Coming into August, the single currency was holding at a key area against the US Dollar as a symmetrical wedge formation showed almost two months of digestion. But that impasse didn’t last for long in August, as sellers soon showed and in short order the Euro was breaking down on contagion fears revolving around the still-developing scenario in Turkey.

This bearish theme in the Euro lasted for the first half of August and against the Japanese Yen, the drop was rather large as some additional Yen-strength further contributed to the move. After setting a swing-high over 131.00 on the first trading day of the month, prices plummeted all the way down to 125.00 just last week, with a bit of support showing off of the same 125.00 psychological level that had turned around bears back in late-May.

EUR/JPY Eight-Hour Price Chart: Bearish First Half of August, Support at 125.00

eurjpy eur/jpy eight hour price chart

Chart prepared by James Stanley

A couple of days before that support inflection, we warned against chasing the pair-lower. While the prospect of bearish continuation appeared attractive, the fact that the move came in so quickly with such little pullback brought upon the potential for an oversold scenario; and once that 125.00 support level came into play last Wednesday, prices have been on the reverse ever since. We looked at two zones for potential resistance last week: From 127.23 up to 127.50, we had a group of prior swing-lows and a bit-higher, we have the Fibonacci level at 128.52 that we used earlier in the month to set up short-side breakouts. That breakout ran for more than 400 pips, but once oversold conditions began to flash, the objective quickly became playing the pullback.

At this stage, that first zone of potential resistance was unable to stop the topside move, and no resistance showed here as prices continued to gyrate higher. What we did see was a quick wick of higher-low support in this area as buyers remained in-control, and now it appears that we’re setting up for a re-test of the 128.52 Fibonacci level.

EUR/JPY Hourly Price Chart: Bullish Throttle Through 127.50 Sets Stage For Resistance Test at Prior Support

eurjpy eur/jpy hourly price chart

Chart prepared by James Stanley

The price of 128.52 is the 38.2% Fibonacci retracement of the ‘Abenomics’ move in EUR/JPY, taking the low from the year 2012 and drawing that up to the 2014 high. But more importantly than that, this level has shown importance to EUR/JPY price action on a number of occasions over the past few months. In early-June, we saw a bit of support develop here, followed by numerous instances of resistance later in the month. After price action broke back-above in July, this price then became support again.

Most recently, this level had stopped the bleeding in the pair in the first couple weeks of August; until the bearish breakout two weeks ago, at which point the floodgates opened, sellers ran amok and prices purged down to the 125.00 level.

Resistance Potential

At this stage, the potential for resistance to develop at this key level of prior support remains. We looked at this setup as part of our FX Setups for the Week of August 20, 2018, and given that we had little to no resistance show at the first zone, the second zone would be the next area of interest for strategies of bearish continuation in EUR/JPY.

EUR/JPY Four-Hour Chart: Overbought Move With Resistance Potential at Prior Support

eurjpy eur/jpy four hour price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q3 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also 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

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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