The EUR/JPY currency provides the liquidity and volatility that traders require to gain profit in the forex world. But, this currency pair can change according to Eurozone debt crisis announcements, policy decisions, economic data releases, and trends in terms of the market. On this page, you will learn everything you need to know to begin day trading with EUR/JPY. Learn about the benefits, drawbacks, history, strategy, trading hours, as well as technical analysis.
What Is EUR/JPY?
Before anything else, the EUR/JPY currency pair is the forex quote indicating Euro vs. Japanese yen exchange rate. Euro stands as the base currency, while the Japanese yen is the counter.
Reasons To Trade With EUR/JPY
You can have so many options when it comes to what currency pair to use in day trading. So, here are some of the possible reasons for you to decide on trading with the EUR/JPY pair.
- Volatility – The EUR/JPY currency pair shows high levels of volatility, leading to more pip movement as well as opportunities for profit coming from steep price fluctuations.
- Stock Indicator – There is no doubt that the pair is considered as the leading indicator for stocks.
- Competitive Spreads – Unlike other pairs, the EUR/JPY comes with relatively low spreads that can lead to higher profit at the end of the day.
- Relative Predictability – Some currency pairs are famous for having misleading signals. But, the EUR/JPY’s direction is usually more predictable than others. The pair’s reversals and signals are easier to determine than with other currency pairs.
- Availability Of Resources – Today, technical analysis is way easier compared to before. It is because you can use candlestick charts, graphs, along with custom indicators and cutting-edge trading tools to analyze. Also, conducting Elliott wave analysis is more direct, and you can have access to forums where knowledge is abundant, including things like daily, weekly, and long-term forecasts.
- Diverse Trading Vehicles – Since EUR/JPY currency pair is cash-rich and liquid, traders can get the advantage from several trading vehicles like futures, ETF, and option. It means more chances to generate profits.
The Risks and Drawbacks Of EUR/JPY
While having multiple benefits, this currency pair also has an array of drawbacks. Check out the following disadvantages of the EUR/JPY pair below:
Education Investment – Because of geopolitical events, the EUR/JPY currency pair will be forever moving according to market conditions. For this reason, your decision to trade with this pair is determined by looking at key facts. As well as historical data that run around the Euro. Traders can keep themselves safe from loss when they are continuously utilizing and learning the resources around them.
Dangers Of Leverage – Leverage can increase the potential gain of a trader. But, it can also encourage losses. Without having an effective money and risk management system, traders can quickly lose a massive portion of their capital.
Automated Competition – Everything is becoming advanced, including the way to trade. It is why the competition in day trading is becoming stricter because of the sophisticated trading algorithms that are right ahead.
Influences on Movement
There is a wide array of factors, which all day traders must consider when trading with EUR/JPY. But, the most critical are the following:
- Economic Strength – The EUR/JPY pair shows the current relationship between the Eurozone and the Japanese economy. It means that the economic instability and uncertainty in Europe can result in the strengthening of the Yen.
- Japanese Imports and Exports – It is undeniable that Japan is a global player in terms of exporting. For this reason, the success of its trading will always change the EUR/JPY exchange prices and rates.
- Price Of Energy Commodities – In the past years, Japan stands as the fourth biggest importer of crude oil as well as the second-largest importer of natural gas worldwide. It primarily relies on these importations to supply domestic energy requirements. It means the association of energy pricing and yen will directly affect the EUR/JPY rates.
- Government Intervention – The Japanese government is imposing several economic initiatives to establish its economy. For this reason, day traders have to watch out on BoJ or Bank of Japan’s interest rates as well as government announcements. It is because these can affect the value of the Japanese Yen.
- Natural Disasters – Traders must also consider that Japan most frequently experiences natural disasters like tsunami, typhoons, and earthquakes, which can have a substantial influence on the economy of the country.
- Slow Yen Growth – Japanese Yen stays as a slow-growing currency, and it continues for a long time. It is a situation that even, for now, it seems that it won’t change.
- Bond-buying Program – In the past years, anything about the BoJ activities associated with the Japanese bond-buying program results in a price change. It means that this QE or Quantitative easing measure stands as the most aggressive worldwide. It is larger than that in the US, even if the economy of Japan is half its size.
Other Factors To Consider
GDP And Employment Rates
All information will affect respective economy strength can result in movement in EUR/JPY valuations.
Every event that imposes instability in the EU will quickly affect the live exchange rate of EUR/JPY. One of the examples is the political disagreements. It is because what is lying ahead of the Euro can lead to the weakening of the currency vs. Japanese Yen. So, traders must observe the following economic data from Europe:
- CPI or Consumer Price Index, or inflation has to be kept under or about 3% by the ECB. Any change with this can trigger the bank to make an action. For this reason, day traders must expect volatility when Consume Price Index is scheduled to release.
- ECB or European Central Bank meetings are staged eight times every year.
- PMI or Purchasing Managers Indexes are also launched every month as well as the report on each sector’s strength.
The success of Japan’s major EU indices and Nikkei 225 stock market index like the Cac 40 and Dax 30 can also lead to movements in the EUR/JPY currency pair.
For this reason, having a different intraday trading system for EUR/JPY requires the consideration of several fundamental factors that are mentioned earlier. It is because the new current rates are subjected to change from all its sides. So, all trades must keep their guards up.
The EUR/JPY currency pair doesn’t include the US dollar, unlike major pairs. For this reason, it is dubbed as a cross. Cross pairs change differently compared to the major pairs.
But while this pair is not composed of the US dollar, it is still dependent on the currency’s movement. It means, the EUR/JPY will change according to the changes in the EUR/USD as well as USD/JPY currency pairs. It is because these majors are negatively correlated with each other.
Positive Correlation – This correlation happens when currency pairs change parallel to each other. The most famous examples of positive correlation include AUD/USD, GBP/USD, and EUR/USD. It is also worth noting that the US dollar is the counter currency.
Negative Correlation – When currency pairs travel in opposite directions, negative correlation occurs. It is because it’s base currency is the US dollar. Some of the most famous examples include USD/CHF, EUR/JPY, and USD/JPY.
The EUR/JPY currency pairs are mostly negatively correlated. But, it is not all the time. It means that it can still improve anytime. The reason behind this is that JPY pairs are affected by the activities in equity markets. As a solution, traders must calculate the correlation themselves.
If you calculate the correlation of a currency pair on your own, you will have better guess whether the EUR/JPY cross will move up or down. Also, doing it on your own is simple and very easy. You only need a page of Excel spreadsheet to determine the statistical measure of -1 and +1.
After setting up a spreadsheet, here are the next steps you need to do:
- Type the price data coming from EUR/JPY.
- Make a column for each of the pairs.
- Put all the previous daily prices only in the period you want to know.
- Put =CORREL in a void cell at the bottom of the spreadsheet.
- After highlighting all of the data you placed in the column, you will get a cell range in the box where the formula is. Afterward, put a comma then proceed to the next step.
- Repeat steps 3-5 to get the next currency.
- Exit the formula, which should be =CORREL (A1: A28, B1: B28).
For the last part, the total output you got shows the correlation of the currency pair EUR/JPY. Now that you know how to get the currency correlation on your own, you can use it to get a better outlook on Forex. It will also help you to develop a better guess on your real-time chart.
Strategies To Use When Day Trading With EUR/JPY
It doesn’t matter if you are opting for a breakout system or a scalping strategy with an expert advisor. Numerous essential considerations are available below, which can enhance your trading strategy.
Just like any other currency pair, timing is essential if you want to trade with EUR/JPY successfully. It means a critical part of your strategy is striking at the right time to trade.
Many traders fail because they believe that more trading will always result in larger profits. But the sad thing is, it doesn’t always mean that you should trade FX from day to night even if you can. Now the question, when is the right time to trade? Check out the following:
Rise And Shine
If you want higher profits, start early. Prepare at least one hour earlier before the opening bell resounds.
Asian markets are the first to match the pace when the liquidity goes back to the forex market after the end of the week. The Tokyo capital market opens from 00:00 to 06:00 GMT, which reflects trading.
Before the closing of the Asian session, the European session becomes active, keeping the activity in trading high. Among the supreme financial markets in London. The biggest activity in the European session for the currency pair of EUR/JPY is from 07:30 to 15:30 GMT. Germany and France, on the other hand, extend this period by providing an additional half an hour before and after the trading day.
Risk is present in every currency pair, which is why traders must be careful against false signals. Effective risk management is among the best things that traders must do to avoid losing in the trading game. Most traders recommend risking within 1-2% of your account balance in one trade.
News is another strategy that you can include in your arsenal. Here are some of the most popular sources you can rely on:
The Early History Of EUR/JPY
The Japanese Yen means round object or circle, which was launched in the year 1871 by the government of Meiji to replace the wavering Edo period. There was no existing standard currency exchange before this.
The Recent History Of EUR/JPY
The frequent trading between Japan and Europe results in the EUR/JPY currency pair. Japan has the fifth biggest global economy today, and most of their trade is exported to Europe. From 2005 to 2015, tariffs and political disputes have disclosed the constant negative trade balance of Europe with Japan. To provide this, the two generated an annual negative balance of £28,741 million from the year 2005 to 2011 to Europe.
Political decisions within Europe and Japan also affect the rates of the EUR/JPY pair. When the prime minister of Japan, Shinzo Abe, launched his ‘Abenomics’ plan, devaluation of the yen against the euro was experienced in an extended period.
Global Financial Crisis (2008 )
Since the euro was introduced in 1999, the relationship of EUR/JPY has been turbulent. One of the examples of this is the global financial crisis that happened in 2008. The currency pair decreased from 169.78 in 2008 to 115.00 in 2009.
If you want to play on top of the day trading world, you have to watch out for the developments in Europe and Japan. Also, you must gather a lot of economic data reports and remember to be early when using your live streaming chart to develop forecasts.