EURJPY Analysis: The EUR/JPY pair was supported by the upper band of the daily Ichimoku cloud on Monday, however, with the top-tier economic data coming up, we are getting mixed signals for it. Read on for an IDDA approach to strategy development for this naughty forex pair.
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EURJPY Technical Analysis
The first point of the IDDA is technical analysis. EURJPY has been trading mainly above the 23% Fibonacci level of 131.50 since October 14th. After two failed attempts to break above the 134 resistance level, its range became narrower. Now the resisting pivot is set at 133.13. The flattening daily Ichimoku cloud is also acting as a support zone.
The Fibonacci setup is retracing the most recent wave of uptrend above the cloud of Ichimoku Kinko Hyo‘s daily setup since June 2017.
Learn about Ichimoku – Fibonacci Strategy Development
On the longer term, monthly time-frame, on the other hand, EURJPY marched up inside the thick monthly Ichimoku cloud since March 2017, before its apparent topping out last month. Looking at the historical EURJPY chart, you’d notice that the pair has a habit of consolidating for a while after massive trends.
Meanwhile, the future monthly cloud has turned slightly bearish.
The current price level is at EURJPY’s median price over the years. The pair has crossed this level multiple times in the past.
EURJPY Fundamental Analysis
The second point of the IDDA focuses on the fundamentals of the respective countries’ economies. This includes upcoming events for short-term trades and general macroeconomic trends.
EU Side: We certainly don’t have any shortcomings in terms of volatility for the Euro crosses! Just today, after China’s data dump during the Asian session today, we’ll kick off the London session with German Gross Domestic Product (3Q) at 7 AM GMT.
This is followed by Italian Gross Domestic Product (3Q) at 9 AM. Then the Euro crosses could get another hit as Euro-Zone ZEW Survey (Economic Sentiment) (NOV) and Euro-Zone Gross Domestic Product (3Q P) are released at 10 AM.
At the same time, Fed head Janet Yellen speaks on ECB Panel with ECB’s Draghi, BOJ’s Kuroda, and BOE’s Carney.
Market participants are expecting EU’s GDP to have remained the same in the third quarter. However, economic growth in the European Union’s eastern members probably picked up as rising wages drove consumer spending.
Last week, the European Commission gave an optimistic view of the EU economy, saying that it is “on track to grow at its fastest pace in a decade this year.”
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Japan’s Side: If all the EU data is not enough to create wild movements in the EUR/JPY pair, we still have Japan’s Nominal Gross Domestic Product (3Q.) It will be released early during Wednesday’s Asian session at 11:50 PM GMT.
Analysts are expecting to see a larger contribution from inventory investment during the third quarter. However, other components might fail to impress. For one, consumer spending has slowed in the Q3 months while financial confidence showed signs of strain on weaker housing investment.
If so, traders could price in an even longer period of easy monetary policy by the BOJ, especially after Prime Minister Abe’s victory in the elections signaled strong support for these moves.
EURJPY Sentimental Analysis
The third point of the IDDA focuses on market sentiment analysis. The idea behind this is to take a contrarian view to crowd sentiment. Retail trader data shows 38.8% of traders are net-long the EURJPY. Traders have remained net-short since Aug 04 when EURJPY traded near 129.449. Since then, the price has moved 2.3% higher. The number of traders net-long is 3.8% lower than yesterday and 47.3% higher from last week, while the number of traders net-short is 6.9% lower than yesterday and 19.4% lower from last week.
Putting this all together, the fact traders are net-short suggests EURJPY 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 EURJPY price trend may soon reverse lower despite the fact traders remain net-short.
Develop Your Trading Strategy: As the 4th point of the IDDA, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio. Join us for a free MasterClass to learn more.
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