EURJPY: Where to From Here?

The Japanese yen has been a mixed bag since November 2016 when pairs like the EURJPY saw a gain of more than 1,100 pips. Then came the 900 pip pullback over four months which triggered yet another 1,000+ pip rally in mid-April.

No wonder I’ve received an influx of emails and comments about the EURJPY. To say the pair has been not only active but also erratic would be an understatement.

Or would it?

I agree the pair has been overly active since November of last year. But to call the last eight months erratic suggests a degree of unpredictability which implies a lack of constructive price action.

I’d have to disagree with that.

I’m going to venture a guess that the majority of those contacting me about the EURJPY are using intraday time frames. If that’s true, I can understand why it’s been a challenge for some to make sense of recent price action.

Here’s where the higher time frames really shine. As soon as we zoom out to the daily chart, everything becomes clear. Everything below the daily is, as they say, clear as mud.

But before we jump into a potentially bullish scenario, I’d like to share a pattern I stumbled across recently. Since July of last year, the EURJPY has been carving out what appears to be an ascending channel.

To put it in context, the channel above began forming after the 4,000 pip drop that commenced in late 2014.

Now, that doesn’t mean this is a bearish pattern, and the pair is therefore on the edge of a cliff. It may not be and even if it is it could take months or even years to materialize as such.

I’m not suggesting that anyone wait months or years before placing a trade here. But I do think it’s important to visualize and understand the bigger picture. It allows us to make a more informed decision when pursuing any short-term opportunities that crop up.

Back to the daily time frame. As you can see from the chart below, the yen cross recently closed above the 123.60 handle. I mentioned this level a couple of weeks ago as being key for buyers to overcome if they intended to advance the mid-April rally.

So step one is complete. However, the last three sessions have shown us another resistance level that needs to fall before buyers can continue their advance.

The trend line that extends from the May 25th high has capped the last three sessions. And although the pair is once again spiking above the level today, it’s important to see where price lands at today’s New York close at 5 pm EST. Everything else is just noise.

A close above the 124.20 area would re-expose the May highs at 125.80. Key support at the moment comes in at today’s low near 123.60. Just be sure to keep the bigger picture in mind as illustrated via the weekly chart above if you decide to take up a position here.

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