How to Trade the EURJPY Currency Pair

Jitanchandra Solanki
12 Min read

The EU-Japan Economic Partnership Agreement has helped European companies export more than €98 billion worth of goods and services to Japan every year. This helps to create a huge amount of daily volatility in the EURJPY price.  

In this ‘How to Trade the EURJPY Currency Pair’ article, we cover how the currency pair works, how to find EURJPY ideas for trading, the current EURJPY sentiment and correlation to other markets and go through a EURJPY forecast for the future.

How does the EURJPY Exchange Rate Work?

The exchange rate of a currency pair can tell you the worth of one currency when bought with another currency. For example, if the EURJPY live price read 140.70, this means that 1 euro will buy you 140.70 Japanese yen.  

Currencies are generally quoted with two prices. The price on the left is referred to as the bid price and the price on the right is referred to as the ask price. On a live chart, these prices would move up and down constantly while the market is open. 

Source: Admirals MetaTrader 5, 20 July 2022 

The Forex market is open 24 hours a day, 5 days a week. If you are trading the Forex market and speculating on its direction then a market buy trade would get filled at the ask price while a market sell, or short trade, will get filled at the bid price.  

The difference between the bid price and ask price is known as the spread and is one cost of trading the currency market. When trading Forex using contracts for difference (CFDs) traders can potentially profit from rising and falling markets.  

This is because CFDs allow you to speculate on the underlying price of a market without actually owning it. This method also allows traders to open positions on margin or Forex leverage which means you can control a larger position using a small deposit which is held as margin or collateral.  

The CFD Trading Guide explains some of the benefits and risks of using CFDs. Or register for your free spot on the Forex 101 course to learn about trading currencies. 

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EURJPY Buy or Sell?

Is EURJPY buy or sell? This is a question every trader asks themselves when they turn up to the market. There are a variety of different methods and tools that can help to answer the question, although there is nothing that will get it right all the time.  

This is why when trading currencies such as EURJPY risk management should be the hallmark of your method. Always use a stop loss and start on a demo trading account first to practice your skills before trading on a live account.  

Some of the most popular methods to analyse EURJPY buy or sell include fundamental and technical analysis.  

EURJPY Fundamental Analysis

Fundamental analysis in the currency market is the process of analysing economic data and news. This can include announcements such as employment figures, inflation, retail sales and others. Two of the largest influences on the EURJPY price are interest rates and safe haven flows.  

EUR/JPY Interest Rates

Interest rates set by the European Central Bank (ECB) and Bank of Japan (BOJ) play a big role in the direction of a currency. International capital tends to flow into economies which are forecasted to increase interest rates in the future. Capital tends to flow out of economies which may cut interest rates in the future.  

Since the pandemic global central banks cut interest rates at record lows. However, the Bank of Japan has kept rates at record lows for many years before the pandemic as the Japanese economy struggled.  

This has led the Japanese yen to be known as a funding currency in which institutional investors would pay a low interest rate to borrow money in Japan and then invest that money into an economy which provides a higher interest rate, thereby profiting from the difference.  

Source: Admirals MetaTrader 5, EURJPY, Monthly - Data range: from 1 Aug 2005 to 20 Jul 2022, accessed on 20 Jul 2022 at 11:36 am GMT. - Please note: Past performance is not a reliable indicator of future performance. 

Since the lows of the pandemic in March 2020, the EUR/JPY exchange rate has been rising steadily. In the first half of 2022, the Japanese yen was one of the worst performing currencies of the G10 countries as the central bank announced its determination to keep borrowing costs near zero.  

This is in contrast to the European Central Bank (ECB) in which the majority of economists are forecasting the bank to start increasing interest rates from the middle of 2022 - the first time in 11 years. This came true in the ECB rate statement released on 21 July 2022 in which the central bank increased interest rates much larger than analysts expected.  

The ECB increased interest rates to 0.50% which is the first time that its rates are no longer in the negative for the first time in just over three years. Members of the central bank and analysts highlighted how the central bank had no choice but to raise interest rates - as the Federal Reserve, Bank of England, Bank of Canada and Swiss National Bank had already done - due to rampant inflation and an Italian political crisis brewing. 

While EURJPY moved higher on the announcement it quickly erased its gains and traded flat for the rest of the day after the news announcement. 

EURJPY Technical Analysis

Fundamental analysis can be very tricky to get right. Economists often get forecasts wrong. This is because the market does not move just on fundamentals. Market positions, sentiment and correlations also play a part.  

One of the more popular methods to analyse EURJPY buy or sell is to use technical analysis. This is the process of studying historical price activity, chart patterns and technical trading indicators.  

Admirals have a large educational library where you can learn how to use Forex indicators and Forex strategies.  

Clients are also given access to the Technical Insight Lookup indicator which can be found in the Premium Analytics section from the Traders Room.  

This indicator provides real-time, actionable technical analysis events on thousands of different markets including EURJPY ideas.

Source: Admirals Premium Analytics, 20 July 2022

The Technical Insight Lookup indicator provides a EURJPY outlook based on technical events taking place over the short-term, medium-term and long-term. The events are described in detail with visual aids provided.  

This is not only a great way to find EURJPY ideas but also to build your knowledge in technical analysis. The indicator can be used across thousands of markets including currencies, stocks, indices, commodities and more.  

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Trading EURJPY Sentiment

Analysing the sentiment of a currency pair can help in understanding the relationship between buyers and sellers in the market.  

The Admirals MetaTrader Supreme Edition Plugin enables you to access sentiment indicators.

Source: Admirals MetaTrader Supreme Edition Plugin, 20 July 2022 

The screenshot above shows the EURJPY sentiment for the 1-hour chart at the time of writing. This shows that there are slightly more traders long on the currency than short.  

Sentiment indicators can be used to either trade with the crowd or as a reversal. If the reading was 80% long or 80% short then it’s likely a reversal could be nearing as these traders would unwind their positions at some point in the future.  

Trading EURJPY Correlation

An issue facing multi-asset class traders is the concept of correlation. There are many markets that are linked together that can move in unison. Many traders end up trading many positions that actually are quite correlated which could result in a larger loss if they all turn around.  

To avoid over-exposure to a highly correlated asset to other markets, consider using a correlation matrix to identify if there are any correlations to know about.  

The Admirals MetaTrader Supreme Edition plugin offers a Correlation Matrix window to view this information.

Source: Admirals MetaTrader Supreme Edition Plugin, 20 July 2022 

The screenshot above shows the correlation against other markets such as EURUSD, USDJPY, AUDCAD, Gold and the DAX 40 index.  

  • Red box = strong correlation 
  • Orange box = medium correlation 
  • Blue box = weak correlation 
  • Green box = no correlation 

At the time of writing, the data shows that EURJPY has a strong correlation with USDJPY (+91) but no correlation with gold (+12). There is a medium correlation between EURJPY and the DAX 40 stock market index (-70).  

This can be useful when trading multiple positions in your trading account. From a risk management perspective, if all of your trades are highly correlated with one another then there is a higher chance they could all win or all lose. It’s important to protect the downside first and foremost. 

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Long-Term EURJPY Forecast

The long-term, monthly price chart of the EUR/JPY exchange rate shows a wedge formation that has developed since 2008, in between the descending resistance line and ascending support line. While the EURJPY price broke through the top of the wedge in April 2021, it only bounced off in March 2022 and started to push higher.  

Source: Admirals MetaTrader 5, EURJPY, Monthly - Data range: from 1 Aug 2005 to 20 Jul 2022, accessed on 20 Jul 2022 at 11:36 am GMT. - Please note: Past performance is not a reliable indicator of future performance. 

Technical analysts would typically measure the amount of pips around the middle of the wedge formation from top to bottom. This would then be forecasted as a price level from where price breaks through the wedge formation.  

This would put a long-term EURJPY forecast towards the multi-year highs of 2007. However, this type of move is typically too long-term to trade. However, it does provide an interesting backdrop for traders to trade the lower timeframes in line with the longer-term trend.  

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Frequently Asked Questions on EURJPY

 

Is EURJPY buy or sell?

Currently, EURJPY is in an uptrend after breaking through a long-term wedge pattern that has developed since 2008. The daily chart's 20-period exponential moving average is above the 50-period exponential moving average confirming bullish momentum.

 

Is EURJPY a good pair?

EURJPY is a popular currency pair to trade on as the liquidity tends to be very high. This is because Europe and Japan represent some of the biggest economies in the world with a high level of international trade and, therefore, buying and selling of the exchange rate.

 

What time can I trade EURJPY?

EURJPY is available to trade 24 hours a day, 5 days a week as are other global currency pairs. However, there is a higher level of movement and transactions done around the European market open between 7am and 9am GMT.

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About Admirals 

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INFORMATION ABOUT ANALYTICAL MATERIALS:   

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals’ investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:   

  • This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.    
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  • With a view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for the prevention and management of conflicts of interest. 
  • The Analysis is prepared by an independent analyst, Jitanchandra Solanki (analyst), (hereinafter “Author”) based on their personal estimations.    
  • Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.    
  • Any kind of past or modelled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed. 
  • Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved
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