Forex Trading Strategies for EUR/JPY | Expert Tips & Analysis

Instrument description

The Forex exchange rate for the Euro against the Japanese Yen is given by EUR/JPY, where EUR is the base currency, and JPY is the quote currency. The Euro is considered to be a stable currency, and one of the most traded one after the U.S Dollar. The Euro is the official currency of 19 countries out of 27 European Union members popularly known as E.U. The Yen, on the other hand, is a low yielding currency which makes it an efficient tool for executing carry trades where the traders can borrow cheaply in Yen and buy high yielding currency such as USD or EUR.

The investors using the currency pairs for future investments tend to rely on carry trades when the global economic markets are stable and moving forward positively. However, the carry trades are abandoned when there is stress or instability in the financial market. The sudden market swings and market sentiment makes the EUR/JPY pair a quite sensitive investing option, but the short term traders can always try to take advantage of the volatility.

The EUR/JPY pair indicates how many Yen will be required to buy one Euro. For example, the current exchange rate of EUR/JPY is 102.37, which shows 1 Euro equals 120.37 Yen; in other words, a trader would pay 102.37 Yen to buy 1 Euro. Nearly, all the global currencies are quoted to four decimal places, but JPY is an exception and quoted to two decimal places.

History of EUR/JPY Currency Pair

The EUR/JPY pair comes in the list of 18 currency pairs that are known for their trading volume, liquidity, and volatility. Both the individual currencies of EUR and JPY, however, are included in the list of ‘Major currencies’ that dominate the Forex market. According to statistics, Euro accounts for 40% of the Forex transactions and second only to the United States Dollar (USD) while the trading involving Yen accounts is 19% which is to third behind the USD and Euro.

The Euro dominates as a currency not only among European countries but also in the world and Japan has a mutual and favourable relationship with most of the European countries. The economy of Japan is mostly technology and agriculturally driven. However, the imposition of tariffs, political relations, and overall economic situation in Europe from 2005 to 2015 made the E.U. run a negative trade balance with Japan. From years 2005 to 2011, the average negative trade balance was recorded of £28,741 million, but as the Japanese economy and exports slowed, the trade balance from 2012 to 2015 between E.U. and Japan came to an average of £4600 million

The countries and companies in E.U. have always engaged in regular associations, conferences and agreements to promote the trade and goodwill such as Free Trade Agreement, EU-Japan Business Roundtable (BRT), and Asia Europe Meeting (ASEM). Since the inception of the Euro in 1999, the EUR/JPY pair has faced sudden changes in market trends and increased volatility. In 2008, the value of EUR/JPY pair depreciated due to the global financial crisis, and the EUR/JPY fell from a high of 169.78 in July 2008 to a low of 115.00 in February 2009.

However, the downward trend of EUR/JPY pair in 2008, resulted in 30% increase in the value of JPY and the reasons why investors have regarded Japanese Yen as a ‘safe haven’ currency as investors can invest in JPY when there is a crisis in the global debt market. The economy of Japan is mostly based on exports, and it is evident from the fact that all the famous companies such as Toyota, Honda, Sony, and Nissan originate from Japan. The wide industrial base, innovative technological advancements, and rich agricultural goods have made the JPY a strong and sustainable global currency.

How to Trade EUR/JPY Pair

The EUR/JPY pair is one of the most popular currency pairings across the worldwide Forex markets, and it represents 3% of the overall transactions. The EUR/JPY is called to be the seventh most commonly traded pair and both the traders and investors take a liking to EUR/JPY pair because of increased volatility and numerous trading opportunities. The EUR/JPY pair is traded 24/7 but the hours when the market is most active are from 7:30 to 15:30 GMT.

The volatile nature of the EUR/JPY pair allows traders and investors to try to take advantage and potentially profit in a short space of time. Among other options a popular way to trade EUR/JPY pair is by using Contract for Difference (CFD) which is a derivative financial instrument where traders speculate on the value of the underlying asset rather than owning the currency. As a trader, you have the option of using leverage to trade on the rise and fall of the market and increase your chance of magnifying your profits. But there are also chances of equal significant losses if the prediction is wrong, so you may need to try to manage your risk. With CFDs, you can also trade in both directions, which means going Long or Short when trading positions.

How to read the Price Change in EUR/JPY Pair

The Japanese Yen is the 3rd most traded currency in the world after the U.S Dollar and Euro and also 4th in the list of reserve currencies after the U.S Dollar, Euro, and Pound. The EUR/JPY pair is commonly traded, and both traders and investors like to evaluate the market and forecast future price movements by analyzing the price charts, historical prices, and studying the financial and political news.

Both the Euro and JPY shift in value depending on the financial news and political scenarios. The traders mostly used trend lines as it provides crucial information about historical and current value. The traders also use support and resistance level, which shows the supply and demand of the EUR/JPY pair. If we see the price charts, the EUR/JPY pair reached the low of 114.274 on May 6, 2020, and the high of 123.776 on June 4, 2020, and currently, EUR/JPY pair stands on 120.351. The Bid price or willingness of traders to buy EUR is 120.351, while the Asked price or traders willing to sell EUR IS 120.346

The EUR/JPY has a positive correlation with currency pairs where USD is the quote currency such as EUR/USD, GBP/USD, and AUD/USD. The EUR/JPY has a negative correlation with currency pairs where USD is the base currency such as USD/JPY, and USD/CHF.

What causes price change in the EUR/JPY pair?

The value of EUR/JPY pair is usually influenced by the monetary policies and interest rates determined by the central banks of the two countries that are Bank on Japan (BOJ) and the European Central Bank (ECB). Since the last ten years, the Japanese government has kept interest rates low, which makes the JPY attractive currency for trading. Apart from interest rates, Japan is also said to have a high savings rate as compared to USA. The reports and news that the traders need to keep a close eye are the BOJ interest rate decisions, Tokyo Area CPI, and Tankan Report. Some of the factors that play a part in determining the exchange rate of EUR/JPY are

• Economic trends in E.U. and Japan as instability in E.U. will make the Yen rise in value
• Balance of imports and exports in Japan as Japan’s economy thrives in exports and any changes will impact the value of Yen
• Japan is a small country but still prone to the occurrence of natural disasters such as earthquakes and hurricanes that seriously affects the economy of Japan.

The EUR/JPY pair allows traders and investors to have the possibility to profit due to the volume and volatility of the market. But as a trader, you need to monitor the price charts daily and view the data and news from the economic calendar to effectively trade positions.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.