EURJPY is another Forex pair that is high on the list of “proxy” currency pairs for the risk sentiment in markets. The two currencies that comprise this pair, the Euro and the Yen have different roles in the Forex market. The Japanese Yen is considered a safe haven currency while the Euro has a status of a risky currency. As a result, when risk appetite is driving markets EURJPY tends to rise in an uptrend by default and when risk aversion kicks in as a general rule the EURJPY pair will switch to a downtrend.
This dynamic of being on the opposite side of the risk sentiment spectrum very often creates a lot of volatility and powerful trends on this pair. Indeed, EURJPY is one of the most volatile and most trending currency pairs in the Forex market. This provides many excellent trading opportunities but can also be a source of a lot of trouble for Forex traders.
Despite being one of the most trending currency pairs trading the EURJPY pair is far from easy as the high volatility can contribute to some frustrating experiences for Forex traders. On intraday charts, volatile price swings are a normal and expected occurrence – often in both directions, up and down. Retracements can be sharp and sudden and often scare-off many traders after which the previous trend resumes anyway
Some characteristics of EURJPY
In many ways, EURJPY behaves similarly to GBPJPY regarding the volatility and the nature of the price action due to the close correlation between the Pound and the Euro. Trends do develop often, but that is not to say that traders should be complacent and forget about a position once they’ve joined a trend. Like GBPJPY, the market can quickly take what it has given on the EURJPY pair as well. Staying vigilant at all times can go a long way into helping to trade this pair better.
The formation of distinct and text-book like patterns on the charts of EURJPY is not so common. The price action tends to be irregular quite often and in fact, if any patterns or formations like head and shoulders, channels or trendlines do occur, they are likely to be slightly distorted and the support and resistance levels not distinctly respected at each touch of the price. Conducting technical and price action analysis on this pair compared to some of the major pairs is slightly different due to this aspect.
Support and resistance levels work well and are respected most of the time even on intraday charts, but the price reactions are rather unpredictable. Sometimes this pair can reverse sharply at a support or resistance area and travel great distances in the new direction while other times it may stay in range at support or resistance for prolonged periods of time before choosing a direction.
Generally, the EURJPY currency pair is better suited for momentum trading where a trader is looking to take a slice of a market move and make quick profits rather than trying to pick exact tops and bottoms or trying to ride a trend from start to finish.
Long trade entries:
Long trade stop loss:
Long trade exits and targets:
Short trade entries:
Short trade stop loss:
Short trade exits and targets:
The tall candle on the left (arrow on the left side) was rejected and several attempts to move higher later were rejected also. This showed that the bulls were losing control in this area and that a bearish signal here should be a good selling opportunity (arrow on the right side) - EURJPY 4-hour chart
EURJPY is correlated with USDJPY and EURUSD
A large amount of volume is traded on the EURJPY pair even though it’s not one of the major Forex pairs. Hence, sometimes movements in EURJPY can precede and even cause movements in major currency pairs such as EURUSD and USDJPY.
Analyzing the EURUSD and USDJPY pairs separately and then combining that with an analysis of EURJPY is also helpful for trading this pair. Technical levels and patterns that appear in EURUSD or USDJPY also affect the EURJPY pair. Taking note of what is happening on these major pairs as well can give additional insights for EURJPY.
Related education and FX know-how:
Trusted FX Brokers
Haven't found what you're looking for? Contact us!
Forex Education - Basics:
Free Forex eBooks:
Forex Education - FX Brokers:
Forex Education - Technical Analysis:
Forex Education - Money Management:
Forex Education - Psychology:
Forex Education - Others:
Forex Interbank Trading: