EUR/JPY Rallies From Fresh Five-Month Lows: Are Bears Finished?

Talking Points:

– Euro Strength and Yen Weakness were prominent themes as we closed out 2017, and that largely remained through the first month of this year. But, after EUR/JPY set a fresh two-year high at 137.50 on the second trading day of February, a reversal has shown that hasn’t yet ceased.

– February and March price action have thus far been dominated by lower-lows and lower-highs in the pair, and prices crafted down to a fresh five-month low last Friday. So far on the early week, we have a rally off of those five-month lows, and at this stage that appears corrective in nature, keeping the door open for short-side strategies in EUR/JPY.

– 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.

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EUR/JPY From Bullish 2017 to Bearish 2018

EUR/JPY remained as a high-flying trend as we walked into February, rallying up to a fresh two-year high on the second trading day of the month before an aggressive reversal began to show. That high set at 137.50 led into a pattern of lower-lows and highs that dominated the pair’s price action in February; and as we move to the close of March, the prospect of bearish continuation remains.

EUR/JPY Daily Chart: Bounce From Five Month Lows as Bearish Drive Remains

Chart prepared by James Stanley

EUR/JPY Rallies From Fresh Five-Month Lows Set Last Week

On the four-hour chart below, we can see that this isn’t the first corrective bounce that’s shown in EUR/JPY. As price action has scaled-lower on the chart, support continues to show up around areas of interest. The Fibonacci level at 129.66 helped to produce the prior lower low before the test of 129.00 came into play. To date, the bearish structure has remained valid as lower-high resistance has capped pullbacks. We’re now nearing the prior lower-high around 131.00, which keeps the door open for short-side continuation scenarios.

EUR/JPY Four-Hour Chart: Lower-High Resistance Potential

Chart prepared by James Stanley

Moving Forward

As we move towards the end of Q1 later this week, the prospect of bearish continuation remains in EUR/JPY. The March swing high had shown near the top of the resistance zone that had previously helped to furnish support, and traders investigating bearish continuation in the pair can look to this area for stop placement. The March high comes in at 132.43, and this could be ideal invalidation to investigate for short-side continuation stances, along with the nearby psychological level at 132.50 .

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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