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EUR/JPY Talking Points:

- EUR/JPY is holding resistance around a confluent area of Fibonacci interest, as we have a longer-term retracement at 129.47 to go along with a shorter-term level at 129.66. The pair has been devoid of recent trends, and tomorrow brings a really big driver to the fray that could quickly change that fact.

- Despite the lack of discernible near-term trend, EUR/JPY has remained on the move with two tests of 125.00 support over the past few months, while also building in resistance at lower-highs.

- 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.

It’s been a volatile past four months for EUR/JPY prices. After coming into 2018 riding an up-trend that started last April, Yen strength began to show in January and didn’t really calm down until we moved into Q2. But that was followed by a re-emergence of Euro weakness shortly after, as the single currency was getting pushed lower on the basis of a more dovish ECB and a heightened risk backdrop. In EUR/JPY, this combined impact helped to push prices all the way down to 125.00 after the earlier-year high was set at 137.50.

EUR/JPY Daily Price Chart

eurjpy eur/jpy daily price chart

Chart prepared by James Stanley

Since that late-May swing low around 125.00 in EUR/JPY, there hasn’t been much for direction on a longer-term basis. To be sure, short-term trends have existed on both sides, as a vigorous bounce from 125.00 ran up to the 132.00 level in early-July, but that soon fizzled out, and prices were in for another support test at 125.00 as Euro-weakness came back in early-August.

But – just as we saw in late-May, 125.00 turned around the bearish theme and prices reverted back-above 130.00, albeit temporarily. The past two weeks have seen a bit of pressure return as EUR/JPY scaled down to test the 128.00 level, after which a bounce has brought prices back to a key zone of confluent resistance. The price of 129.47 is the 50% marker of the 2000-2008 major move while the price of 129.66 is the 50% marker of the shorter-term major move that started in June of 2016 and ran up to those January highs at 137.50.

EUR/JPY Daily Price Chart: Confluent Fibonacci Resistance In-Play

eurjpy eur/jpy daily price chart

Chart prepared by James Stanley

Moving Forward

Making matters a bit more challenging given the lack of discernible near-term trend is the fact that tomorrow produces what could be a big driver for the single currency. The European Central Bank is widely-expected to begin tapering QE purchases at tomorrow’s rate decision, and this could bring a large bearing on near-term price action. This also makes the prospect of picking a direction to work with the pair as a bit of a challenge; as there’s a valid case to make for either bullish or bearish scenarios, all of which will likely be determined by the tone with which the ECB rolls out this new piece of information.

This can put traders in an observatory spot as we approach tomorrow’s headline risk. Traders can let the pair make its move before assigning a directional bias, with the 131.00 level that helped to set the August high as a marker for topside setups. If we see prices test through 131.00 tomorrow, traders can then look to buy higher-low support around the 130.35-130.00 area of support. On the bearish side of price action, traders can zero-in on another Fibonacci level of interest at 128.52. We previously used this to work into short-side breakouts, and we saw a recurrence of support at this level after prices reversed in mid-August. A downside test through this level opens the door for lower-high resistance, after which targets could be directed towards 128.00, 127.25 and then 126.82.

EUR/JPY Eight-Hour Price Chart: Congested, Let the Market Make a Move Before Assigning Directional Biases

eurjpy eur/jpy eight 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