Trading EUR/JPY

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Tobias Robinson

Tobias is a UK director and partner at Investing.co.uk. He provides commentary on the financial markets in the UK and supports the testing team with first-hand observations from over two decades of active trading.

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William Berg

William is an experienced investment writer with a history in forex trading software localization and IPO consultancy. He contributes as an author and fact-checker for established financial websites.

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The Euro and Japanese Yen (EUR/JPY) is one of the most popular and volatile crosses traded in the world today. But before you start investing on the EUR/JPY exchange rate, use this guide to understand how to forecast future prices using live online charts, the latest news and technical analysis. We’ll also look at the history of both currencies, plus other top trading tips.

The EUR/JPY Explained

EUR/JPY is the forex pair quote representing the currency exchange rate between the Euro and the Japanese Yen. The base currency, EUR, is quoted against the counter currency, JPY, which means you need a certain amount of JPY to buy one EUR.

Due to high levels of volatility, the EUR/JPY pairing represents around 3% of all daily transactions and is the seventh most-traded currency pair on the market.

To fully understand the price movements of the pair, below we analyse the origins of the two currencies and what historical factors have affected the EUR/JPY price.

The Euro

Compared to the Japanese Yen and many other currencies, the Euro is relatively new. Originally released as an invisible currency in 1999, it was not until 2002 when coins and banknotes were launched to the public. This became the biggest cash changeover in history, taking place in 12 EU countries.

Despite its infancy, the Euro has seen high volatility due to political and economic events at the start of the century, including the 2008 financial crisis. From 2013 to 2015, the Euro fell heavily again as debt problems emerged in Portugal, Spain, Greece and Italy.

The Japanese Yen

The Japanese Yen is the third most-traded currency in the world and is the fourth reserve currency behind the US Dollar, the Euro and the Pound Sterling.

The Yen was officially created in 1871 by the Meiji government and was steadily boosted in value due to Japan’s strong industrial economy. After losing much of its value after World War II, the Yen was then fixed at 360 JPY per 1 USD in order to stabilise the Japanese economy.

When this system was abandoned in 1971, the Yen became undervalued and was allowed to float. Throughout the 1970s and 1980s, the Yen fluctuated in value due to government intervention in the ‘dirty float’ scheme and the Plaza Accord. Since that time, the price of the Yen has gradually decreased.

Pros Of Trading EUR/JPY

• Volatility – High volume and volatility products like EUR/JPY can result in good trading opportunities from upward price movements.
• Stronger trends – As EUR/JPY is a cross pair, it generally develops stronger trends compared to major currency pairs. You can easily see this in action on a realtime or 1-hour price chart.
• Diversity – Intraday traders also enjoy a range of EUR/JPY trading options, such as ETF products, futures and forward instruments, and more.
• Technical analysis – Today, any trading system can offer an abundance of technical and fundamental analysis tools. This includes daily forex candlestick chart analysis and tools which allow you to access real-time economic news.
• Spreads – As one of the most popular traded pairs, you should be able to find a low bid-ask spread for EUR/JPY at most forex brokers.

Cons Of Trading EUR/JPY

• Volatility risk – Whilst high volatility can be profitable, it can also result in heavy losses if you do not have appropriate risk management tools in place.
• Leverage – Leveraged trading is often misunderstood, especially by new traders. Remember that you can lose more than you initially put down, so make sure you understand this concept before committing to a trade.
• Commitment – Due to its volatility, the current price action of EUR vs JPY is dynamic and constantly moving. This means UK traders will need to monitor market conditions and stay on top of historical data downloads in order to successfully execute a trend forecast.

What Factors Affect EUR/JPY?

European Factors

For today’s UK traders, there are a number of factors that influence the movement of the Euro, namely economic, political and financial. A notable example is monthly reports released by the European Central Bank (ECB), which can give traders an indication of where the Euro is heading.

Current employment rates and job creation is often another factor that can see the Euro go up or down. This data is also readily available to the public and is worth keeping an eye on to monitor the strength of an economy.

Other factors include monetary policy, inflation and the Consumer Price Index, confidence and sentiment, plus GDP. Experts suggest that now that Brexit has occurred, France and Germany now account for nearly 50% of the Eurozone’s GDP. These are therefore the best places to start if you’re looking for economic reports.

Japanese Factors

The same kinds of economic, political and financial factors also affect the spot Euro and Yen exchange rate, in addition to the high rate of import and export trading in Japan.

Another major factor is the current rate of natural disasters in the region. Because Japan is a small country, natural events can cause the currency’s value to fluctuate hugely.

Interest rates and government intervention initiatives also play a huge role in affecting the direction of JPY. The Bank of Japan, for example, has maintained a consistent zero interest rate policy for decades.

How To Trade EUR/JPY

If you’re considering day trading on EUR/JPY, you can check out the best platforms to use in some of our online broker reviews. Before you start, it’s worth getting to know the various strategies and considerations associated with the pair.

EUR/JPY Forex Trading MT4

EUR/JPY Forex Trading MT4

Technical Analysis

For many traders, technical analysis is an essential base for any trading strategy. Technical analysis is the study of historical data on realtime price chart movements, which allow you to make a prediction on future forex trends.

Support and resistance levels, for example, can be used to indicate the high and low price points on a graph, at which the price will stop and reverse. These can also be used to analyse the average daily range pip movement of EUR/JPY, or to complement a breakout strategy. You could also use an indicator to map out bullish and bearish trends on an hourly chart, such as Elliott Wave analysis or daily Pivot Points.

Live streaming price charts are not only used for short-term forex analysis, as some can also facilitate a long-term chart forecast with timeframes spanning years. Moving averages, for example, work well on yearly charts, as they can show you the overall direction of price over time. You could also use a simple moving average on a 5 or 15 minute chart if you want to build your scalping strategy.

Fundamental Analysis

Whilst you can get a reasonable daily outlook from technical studies and indicators, these should also be combined with fundamental analysis. This involves monitoring any news reports and global events that might affect the EUR to JPY daily or weekly forecast.

Some of the most popular resources include Bloomberg, Forex Factory, Reuters, Yahoo Finance, Google Finance and CNBC. It’s also worth looking out for any economic news calendars, market sentiment tools or blogs within your trading platform.

Automated Trading

Some platforms also offer automated and algorithmic trading functionality, including Expert Advisors (EAs), which can be used for short-term or long-term strategies. For example, you could use a scalping strategy with an EA to make quick profits on EUR/JPY.

You can also use automated signals, where you can subscribe to another trader’s account and get their deals automatically copied into yours. This is a good option if you’re short on time or unable to monitor trades regularly.

You can easily apply a daily forex signal on EUR/JPY in the MetaTrader platform, for example, by exploring the vast range of providers in the Signals tab. Clicking on an individual provider will take you through to their success rates and monthly profit charts.

Note that automated trading isn’t for everyone and it will take practice to find the solution that suits you. If you encounter any issues, the community forum is an excellent place to get an initial prognosis, advice and recommendations.

Correlation

A simple EUR/JPY forex trading strategy that you can use to forecast the future price, is the positive currency correlation with both EUR/USD and USD/JPY. A positive currency correlation is when the values of the currency pairs move in tandem.

With this in mind, traders will avoid buying or selling EUR/JPY when EUR/USD is going up and USD/JPY is going down. Similarly, they will avoid trading the cross when EUR/USD is going down and USD/JPY is going up.

Therefore, the optimum conditions at which to buy EUR/JPY would be when both EUR/USD and USD/JPY are hitting the support level and rallying. Conversely, if you want to sell EUR/JPY, make sure the other two pairs are hitting resistance and coming down.

Note that the EUR/JPY and CHF/JPY also have a positive correlation. This is due to the close relationship between the Swiss Franc and the Euro.

Risk Management

Remember that the strategy above should be protected with stop loss and take profit barriers. These will ensure that your account automatically closes trades when prices hit a set level.

To determine your stop-loss price, you can employ technical analysis tools such as support and resistance, pivot points and trendlines. If you’re buying EUR/JPY, your stop-loss closing price should always be placed below the currency market price and if you’re selling, it should be placed above.

You can use an online calculator to determine how much you can risk per trade and make sure to check out any tips and advice online.

Session Times

Although FX markets operate around the clock, there are optimum session times for EUR/JPY where UK day traders can generate more profits from greater volatility.

Some sources suggest that the best time to trade EUR/JPY is when the London and New York trading sessions overlap, between 12:00 and 16:00 GMT. Swing traders may also want to keep an eye on EUR/JPY on Thursdays, when average daily volatility is highest.

Final Word On EUR/JPY

EUR/JPY is a volatile and exciting pair to trade, with plenty of analysis options available for day traders. Whether you’re scalping on a daily live chart, or long-term investing on 1 or 5 year charts, make sure to stay updated with the latest analysis and economic developments in Japan and Europe.

The technical and fundamental analysis tools mentioned above should also provide the basis of your research into trading EUR/JPY. Nonetheless, it’s ultimately up to you to decide on the best strategy to help you achieve your target.

Find out more about forex trading.

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