After moving lower over the last two weeks EURJPY has found support at around a pivot high at 145.68. This has translated into a sideways move with higher lows in the daily chart. This implies that the pair might be moving higher from the current levels with a short term target at 148.19. Trading a currency pair with two weak economies is always a challenging task but now we have the added flavour of having both central banks promising more stimulus and adding therefore another layer of difficulty to the task. It might well be that the reason euro could be relatively stronger than Japanese Yen is that when Prime Minister Shinzo Abe decides to act he does not have to get approval from other national leaders, whereas his European counterparty ECB president Mario Draghi is in a much different position. There will be no stimulus packages if the Germans will not give their approval to Mr. Draghi’s plans. This means delays and more uncertainty and therefore a relatively stronger currency when compared to Japanese Yen.
EURJPY, Weekly
The move higher in EURJPY has hit a historical resistance at 149.27. This resistance level is a level that used to support the pair in August 2007. The Stochastics is overbought as often is the case after a long move higher, but the pair has found support around 145.68 pivot level. This pivot high was a resistance a year ago, in December 2013.
EURJPY, Daily
The pair is now between a weekly support level at 145.68 and a daily resistance at 146.63. The daily Stochastics indicates that this market is oversold. Unless the market is very emotional or impacted by a news event it usually is the higher time frame level that is more likely to hold while the smaller time frame level has to give in. It therefore makes sense to bet that the daily resistance level will have to give in while weekly support is more likely to hold. However, if the price keeps on consolidating below the 146.63 level, the likelihood of price breaking lower increases. This far the daily lows (today and yesterday) have been higher than the day before. This indicates that buyers are willing to provide support and are trying to push this pair above the resistance.
However, buying in the middle of a two to three day range is not a high probability setup. I would prefer to be a buyer when price either touches the weekly support at 145.68 (or moves below it) for the first or second time. Additionally, I prefer the market to shows signs of momentum reversing in smaller time frames while at or inside a potential support area. Even then there is a possibility that we might get stopped out before the market takes off to the anticipated direction but at least we know that we are trading inside a potential turn around area and the probabilities are on our side. Then, and only then it makes sense to try again (after being stopped out), once we get another signal to go long. If trades are taken in the middle of a range, the likelihood of price moving (enough to stop us out) to either direction is equally high.
EURJPY, 60 min
We can see in the hourly chart how price has moved up pretty quickly when it touched the support level the first time. The next two occasions the support was tested produced weaker moves and lower highs. The performance could have been better in terms of reaction from this support after the first touch. However, as long as the pair makes higher lows at this support area and does not spend too much time (more than before) below the level, we can assume that there is still a sufficient demand at these levels. If we get a period of prolonged sideways action under today’s lows, the probabilities for a deeper correction go up. The latest price action in 60 min timeframe indicates that buyers are still interested taking the pair higher as the latest move to 60 min Bollinger Bands was rejected and the bar has just closed higher. This supports the view that the pair is more likely to move higher from the current consolidation. Once the resistance at around 146.63 is cleared and price has closed above the level, the resistance at around 148.19 looks like a very probable target for short term long trades.
Conclusion:
EURJPY is close to a weekly support, which means that the current levels are not great for short entries. This translates to market probably moving higher rather than lower. The daily Stochastics indicates that this market is oversold but the pair is between a daily resistance at 146.63 and the weekly support level at 145.68, and therefore moves currently sideways. A daily resistance is more likely to give in than a weekly support. Therefore we should pay attention to the lower time frame price action. The latest price action in 60 min timeframe indicates that buyers are still interested taking the pair higher as the latest move to 60 min Bollinger Bands was rejected and the bar has just closed higher. This looks bullish to me and supports the view that the pair is more likely to move higher from the current consolidation. Once the resistance at around 146.63 is cleared and price has closed above the level, the resistance at around 148.19 looks like a very probable target for short term long trades.
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.
Janne Muta
Chief Market Analyst
HotForex