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

EURJPY price action trading forex
Although EURJPY is trending on this chart, instances of huge spikes in volatility (marked with the blue arrows) can still be seen here – EURJPY 1-hour chart
​​​​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.

​​Trading conditions:

Long trade entries:

  • Instances of volatile price action that result in chart patterns or trading signals tend to produce good results. For example, if a bullish candlestick pattern is formed on volatility that is twice as large as the usual volatility for that period of time is more likely to result in a continuation of the bullish move compared to a bullish pattern that is formed on volatility that is half of the normal volatility.

  • The classic combination of a solid support zone accompanied by a bullish signal tends to work well for long entries on EURJPY as well. Due to the high volatility of this pair, however, shakeouts can be common with the price dipping below the support before continuing higher.

Long trade stop loss:
  • Hiding the stop behind a support zone that has been created on high momentum bars/candles tends to work the best. Generally, levels below support that has been tested and confirmed several times or that has been created after a momentum breakout is a good place to position a stop loss order.

Long trade exits and targets:
  • Aiming to make quick profits on a momentum driven move with profit targets toward the nearest resistance zone to the upside tends to work well on EURJPY.

EURJPY trading strategy profit momentum
A tall bullish candle puts a bottom which is then confirmed on a volatile bullish breakout (blue arrow). The dotted line indicates an important technical area which was resistance in this case and the price later reached it. - 1 EURJPY 1-hour chart

Short trade entries:

  • Traders who learn how to exploit the volatility, the risk sensitivity and the trending behavior of this pair will do well in trading it.

  • Due to the risk sensitivity of this pair, the price can fall quickly and far and as a result, can often reach oversold levels. The main risk in joining such moves is entering too late after the move has already run its course and the market has already started to reverse the direction.

  • Bearish trading signals that are accompanied by tall volatile candles are a good sign that a top has been put in place, at least in the near-term if not a full-scale reversal of trend. Solid bearish signals of this type that form at a verified and strong resistance area are even more likely to provide good trading opportunities.

S hort trade stop loss:
  • Consequently, it’s best to place the stops slightly above such key resistance zones.

Short trade exits and targets:
  • Early signs that a downtrend might be ending should be taken note of and acted on especially if they appear at an important intraday support area. Fibonacci extensions and retracements can also be sued to take profits as soon as the price has reached such an area.

  • As discussed throughout this article, when it comes to trading the EURJPY pair, most of the time it’s better to not be too greedy and take what the market has given you early rather than holding a position for longer betting on bigger profits.

EURJPY short selling trading risk off risk aversion
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.



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