Analys från DailyFX
EUR/JPY Technical Analysis: Where Weaker Just Means More Negative
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Talking Points:
- EUR/JPY Technical Strategy: Short reversal setup identified (aggressive)
- EUR/JPY got much needed relief after the pummeling down-trend caught support to end the month of January.
- Both Euro and Yen are in the spotlight as both economies are utilizing negative rates. To get our big picture analysis, check out our Trading guides with forecasts for each currency.
The Bank of Japan shocked the world by moving interest rates into negative territory at their most recent policy meeting. Before that, only Europe had dabbled with sub-zero deposit rates and that’s only been for the past year-and-a-half, so to say that the prospect of a major economy using negative rates is still ‘new’ would be quite the understatement. The move was largely tokenary in form as the cut was a simple 20 basis points to move the BoJ rate from .1 to -.1; so we’re not talking about a huge move here. But it is emblematic, and Mr. Kuroda said at the accompanying press conference that he’d go more negative if need-be.
This makes the prospect of staying long the Yen rather daunting, at least if you’re marrying the Yen up with anything that doesn’t have more dire prospects than the Japanese economy. And as unfortunate as it may be, there is an economy with just that scenario in Europe. In Europe, rates are already negative and they could go even further below zero. The optimistic silver lining here is the idea that European Central Bank may be able to go for more QE at their March meeting, and the ECB looks far more equipped to embark on an increase to QE than Japan does.
But that, for all intents and purposes, presents a neutral tone in EUR/JPY. What makes this compelling is the technical setup. The rip on Friday after the BoJ’s announcement sent price right into a relevant zone of resistance that we’ve been discussing over the past few months. This is the zone from 131.67-132.03, where no fewer than three relevant Fibonacci levels fall. There’s also a 13-month trend-line projection in this vicinity as well. This confluent zone contains the 61.8% retracement of the most recent major move at 131.80 (in aqua), the 50% retracement of the secondary move at 132.03 (in orange, can be found by taking the 2008 high to the 2012 low) and the 76.4% retracement of the tertiary move at 131.675 (in yellow, taking the 2014 high to the 2015 low).
After Friday’s massive counter-trend rip, traders are faced with a decision: Do they want to hit the setup aggressively or more conservatively? The aggressive setup could be taken now with a stop above the next level of potential resistance at 132.50. The high on Friday came in at 131.27, and with a major psychological level so closely nearby, traders can look to wedge stops for short positions above that 132.50 level to take on ~70 pips of risk. This could open the door for a 1-to-2 risk-reward ratio down to the lower psych level at 130. Below 130, targets could be cast to 129.45 (50% Fibonacci of the ‘big picture’ move in the pair), 128.50 (38.2% retracement of quaternary move, taking 2012 low to 2014 high), and then 126.15 (prior swing-low).
To treat this more conservatively, traders can wait to confirm that resistance in this zone will, in fact, be able to hold. Doing so would bring a less attractive risk-reward ratio, but that’s the nature of the beast when trading reversals. This style of trading can be really dangerous, so please make sure that your risk management has been addressed if trying to fade a move in EUR/JPY or any currency pair.
Created with Marketscope/Trading Station II; prepared by James Stanley
— Written by James Stanley, Analyst for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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