The euro-yen currency pair, often written as EUR/JPY, is actively traded 24 hours a day, and, due greatly to its popularity, is sometimes referred to as the fifth major.
- Medium-term trading pair, generally range bound.
- Consistent volatility
- Impacted by international trade ratios.
- Oil pricings impacts Japanese yen price.
For those traders specifically seeking a more range-bound environment for medium-term trading, the EUR/JPY would be an excellent possibility. Traders who are new to the pair should take advantage of a free practice trading account offered by FXCM so that they can begin testing a potential trading strategy.
Generally, the pair is known to have an average daily range of 112 pips and for wide long-term ranges. According to analysts, it is a great pair simply because the moves are significant, and good entry and exit points can be easily discovered using technical analysis.
FXCM offers another excellent tool, which is free for live account holders, known as the Technical Analyzer and can be found on the DailyFX+ website. Specifically, it gives live traders details such as up-to-date support and resistance levels and pivot points, including a preference in the market for that time frame. This provides traders with another form of analysis, which they can compare with their own when looking for potential trades.
Because the euro-yen pair trades in a range most of the time, it is important for traders to approach it with technical analysis, which is suitable for range trading. Although there are several well-established methods of trading a range-bound market, the Fibonacci levels provide a very good estimate of where support and resistance levels lie.
Traders can then also either use Stochastics or Bollinger Bands to find specific levels of where they may want to enter or exit the market. All of the indicators are offered standard with any of the 12 charting packages that are offered through FXCM, even the ones that are free. This way a trader can gauge if a new possible setup is in the works and approximately when a potentially profitable trade could be placed. By continuing to follow the range and placing many trades on a practice account, a trader will be able to follow specifically where trading errors have occurred but also where they have been successful. This is great preparation for a live account.
Japanese Yen and the EU Euro: What Moves this Pair?
Although the Japanese yen and the euro are known to be a range trading currency pair, it is important to know the specific news that can influence the direction of that range. In many ways, this pair often integrates fundamental data better than many of the majors. Especially with regards to the Japanese yen, the Bank of Japan and their fiscal policy play a strong role in its strength or weakness as a currency. The Japanese economy is largely export driven, and in the past when the yen has strengthened too much against the US dollar, the Bank of Japan, also known as the BoJ, has intervened in the market to weaken the yen. The BoJ is known to favor a specific price band for their currency against the USD, and if they were to intervene, it would have a very similar effect on the euro against the Japanese yen.
The Japanese yen is also very sensitive to any changes in oil prices because the Japanese have to import over 90% of their oil. Great spikes in oil prices can therefore seriously weaken the JPY.
For traders interested in this pair, it is important to follow any major news that could influence the currency pair. Classic economic indicators that show overall strength or weakness are the best. For the Japanese yen, watching the following reports is recommended: Inflation, Consumer Spending, BoJ Monetary Policy Meetings, Trade Balance, Industrial Production, and the Tankan Survey.
For the euro, the overall European GDP, Trade Balance, CPI, and the European Central Bank (ECB) decision would be appropriate indicators. The use of these reports allows traders to at least gauge any potential movement in the market. The DailyFX website is a great way to keep up to date on economic reports and should be used even when first trying to trade this pair on a practice account.
