One of the interesting pairs in forex trading is EURJPY, how to trade EURJPY?
Well, I will talk about EURJPY, because in average movement daily, this pair is one of the favorite pairs of many traders. The high daily average is one of the reasons why this pair is attractive to trade.
The daily average is high because the EURJPY pair represents the strength of two major countries, Europe and Japan which are countries with advanced economic levels.
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What does EURJPY mean?
EURJPY is a currency pair traded in online forex trading. EUR is a symbol of the European currency, it is Euro while JPY is a symbol of the Japanese currency, it is Japanese yen.
The euro is the currency of the European Union which has been used on 1999 January 1. However, its use in the form of banknotes has only started on 2002 January 1.
According to Wikipedia, there are 19 countries that are members of the European Union using the Euro currency.
In all countries, the form of euro banknotes is the same. But what distinguishes it is that the coins on the back have a different picture representing each country.
In the beginning, only twelve countries used the Euro, they were Belgium, Germany, Greece, Finland, Portugal, Ireland, Spain, France, Luxembourg, the Netherlands, Austria, and Italy.
Followed then by Lithuania, Latvia, Estonia, Slovakia, Malta, Cyprus, Slovenia.
Besides these countries, several small countries also use the Euro, such as Andorra, Monaco, San Marino, and the Vatican.
The Japanese yen currency has been used for a long time, from historical sources that the Japanese yen currency was officially established by the government on June 27, 1871. So in 2021, the Japanese yen has been 150 years old.
Compared with the use of the Euro is more than 100 years adrift.
Like most money in general, the Japanese Yen is also printed in banknotes and coins. In treating paper money, the government using a clean money policy. So that paper money always looked new. Not allowed to cross either in ink or otherwise on banknotes.
The EURJPY pair that represents the Euro and the Japanese yen has unique characteristics.
- EURJPY is a cross multiplied pair between USDJPY and EURUSD, although there is a difference but in a small amount. For example, EURUSD is currently at 1.1908 and USDJPY at 108.18, if those two are multiplied then 1.1908 x 108.18 = 128.82. From this calculation, it is known that the EURJPY price is 128.82.
- This pair is full of surprises, where candlestick patterns often fail to provide accurate analysis, so it is necessary to pay attention to the EURUSD and USDJPY pairs.
- The daily range of price movements is often different on Monday and Thursday.
- The short-term average movement reaches 35 pips against resistance support. This means that in one wave up or down it can reach 35 pips.
EURJPY daily range
Knowing the average daily range of a pair is very important to pay attention to. Because by using daily range data, traders will determine to stop loss and profit targets rationally based on this data.
EURJPY from year to year also has an average daily range that changes, starting from 2014 to 2020 the daily range of EUR / JPY is 97pips in 2014, 137 pips in 2015, 126.5 pips in 2016, 88 pips in 2017,103.5pips at 2018, 73.5 pips in 2019 and 96 pips in 2020.
From the overall average daily range from year to year, we can conclude that the average EURJPY daily range is between 100 pips to 150 pips, on the broker the two digits behind the comma.
Even though it is not the pair with the highest daily range, EURJPY is one of the most profitable pairs if you really understand its character. For pairs with the highest daily range is GBPNZD, with more than 160 pips to 200 pips.
How to calculate the daily range?
To calculate the average daily range of the EURJPY pair, this requires high to low data based on the daily time frame. Then the data is calculated and divided by the number of periods taken.
Using this method may be quite a hassle because traders have to find daily movement data. Meanwhile, an easy way to calculate the daily range average is to use indicators.
One indicator that can calculate the daily range is ADR, this is the Average Daily Range which will display the daily average on your chart.
Unfortunately, this indicator is not available on the default MT4 platform, so you have to download it and install it on your platform. You can find a free ADR indicator at MQL5.
What affects EURJPY?
Referring to the correlation between pairs, EURJPY is affected by trend changes in EURUSD and USDJPY.
Therefore, when trading on EURJPY, you should also pay attention to the EURUSD and USDJPY trend movements. The strengthening of the USD may not have a big effect on the EURJPY pair, but if the strengthening occurs in the euro or JPY it may have a big effect on the EURJPY.
The news factor can also affect this pair, especially news related to the Euro and JPY. Therefore, paying attention to the latest news on the euro area and the Japanese economy should be a concern.
It is also a good idea to monitor daily news in the economic calendar to see news for JPY and Euro. Political conditions can also affect the currency because this has an impact on state security which is the concern of investors.
Unforeseen events such as natural disasters can also affect changes in currency prices. For example, the Tsunami and earthquake in Japan some time ago caused the Yen to fall.
When to trade EURJPY?
This is an important question when trading EURJPY, especially if using a brokerage service with variable spreads. You may find that opening positions in the Sidney session is subject to higher spreads. Meanwhile, price movements in this session for the EURJPY pair were less profitable because they were not too volatile.
In theory, the movement of the EURJPY pair began in the Asian session, because Japan is one of the countries in Asia, so logically the volume of transactions will begin to increase in this session.
The rest of the time the busiest time from 8:30 AM EST when the London overlapping New York session. Many traders will speculate on this hour thus increasing the volume of transactions.
EURJPY breakout strategy
Maybe you already understand how to trade breakouts.
This is to take advantage of trading signals based on the break of the psychological level of the price. EURJPY breakout strategy also refers to these rules, by making the trading concept simple, it doesn’t mean it’s not profitable.
The trick is to draw a box of high and low prices on the previous H4 time frame at 2.00 (am) GMT. This strategy is an idea from FXMD, in the Forexfactory forum.
How to trade is very simple, you can put pending order buy stop above the top line box and sell stop below the bottom line box.
If you are not using a pending order you can perform manual execution, buy when the price is above the box, and sell when the price is below the box.
But you have to concentrate high if you do instant execution, the delay in execution can missing the best momentum during the breakout.
This strategy uses the M15 timeframe, and the way to determine the exit point is to measure the box high.
For a buy close position when the high has reached 100% of the box high, and for a sell close position when the price below has reached 100% box high.
Because this strategy is a breakout, you should still use stop loss, for buy stop loss is placed below the box, and for sell stop loss is placed above the box.
Box size may vary from day to day, if the box size is from 15-45 pips it is possible that the target will be achieved, but if it is below 15 pips it may be difficult to achieve the target, but that does not mean this strategy is not working.
EURJPY fundamental analysis
EURJPY fundamental analysis is a market approach based on news from sources that are a factor in currency changes.
Especially in the ECB policy which is the European Central Bank which regulates the euro currency. News such as rising interest rates, stimulus packages are often the reasons for the ups and downs of the euro currency.
The economic conditions of European countries, especially Germany, Greece, were also under the spotlight of market players that could encourage or weaken the euro.
Decreasing GDP may get a response from market players, causing the currency to decline. PPI, CPI, etc. high-impact news can cause sudden changes in currency values.
Meanwhile, the BoJ, which is the central bank of Japan, also often takes actions that cause the currency to strengthen or weaken over a wide range.
The JPY currency strength that is too high can be considered less profitable for export activities, so it is possible that the BoJ will intervene in the currency to weaken it.
But unfortunately, it is difficult to get access to news when the BoJ will intervene in the currency so that sometimes traders realize too late that the BoJ has weakened or strengthened the JPY.
Retail traders usually only see high-impact news on the economic calendar as an early warning for their trading.
What correlates with EURJPY?
EURJPY is a pair that correlates with other pairs such as EURUSD, USDJPY. In addition, it also correlates with the USDCHF pair, even with GBPUSD. The following is an overview of EURJPY’s correlation to other assets.
Correlation between EURJPY and USDJPY
EURJPY and USDJPY are correlated because they both have an element of JPY which is the Japanese Yen. The strengthening of the Japanese Yen may cause both pairs to move in the same direction.
But that move will also depend on the strength of the euro and USD. So that the movements are not exactly the same. Especially if the USD is strengthening against other currencies, the increase in USDJPY will be faster than EURJPY.
The EURJPY and USDJPY correlations can be both positive and negative correlations according to the Myfxbook chart which ranges from -61% to 83%.
EURJPY and GBPUSD correlation
In general, the EURJPY and GBPUSD pairs do not have the same currency elements, so the correlation between the two is an indirect correlation, and is influenced by currency changes, especially USD against the euro.
If you look at the history of both prices, they are often positively correlated with fluctuating values. And the lowest point of correlation occurred on 19 November 2020 with 1.7% and the highest value was 28 August 2020 with 95%.
From the Myfxbook chart above. It can be concluded that the positive correlation that occurs always fluctuates like a price wave. The patterns that appear often repeat themselves. So that it becomes a guide for traders to take advantage of the correlation between the two.
EURJPY and EURUSD correlation
EURJPY and EURUSD often move side by side, if EURUSD goes up, EURJPY often goes up too, this is because they both have the euro instrument which is the key to raising and falling prices for both.
However, the correlation is not always positive, as illustrated in the graph from Myfxbook below. A negative correlation has occurred since March 2, 2021.
After January it experienced the highest positive correlation with 94%. Then the graph dropped sharply and broke through the zero points to become a negative correlation at time press was -24%. This condition was triggered more by the strengthening of the USD against other currencies.
EURJPY and EURNZD correlation
We see that EURJPY and EURNZD also experience a positive correlation and a negative correlation. Since August 2020 both have experienced a positive correlation. With the highest value at 87% at the end of August 2020.
However, conditions changed from the end of November 2020 to a negative correlation. Until the press time with the lowest value of -66.9% at the beginning of March 2021.
Because both have the euro instrument, if this currency strengthens in another currency, it causes a positive correlation. However, if NZD or JPY is dominant, it can result in a negative correlation.
EURJPY and GOLD correlation
Although there is no direct relationship between the Japanese yen and gold. By comparing the price trend of the two. It can be concluded that the correlation between JPY and gold can occur with a positive correlation and a negative correlation.
Citing from MyFXbook EURJPY-XAUUSD. The positive correlation has occurred since August 2020. And has started to become a negative correlation since the end of November 2020.
The positive correlation was repeated in mid-January 2021. Until finally in the middle of February 2021 the correlation was negative again.
It seems that the negative correlation between EURJPY and gold was triggered by the recent strengthening of the USD against other currencies such as GBP, JPY, and also Euro. The value of gold has also been corrected down since early January 2021.
How to hedge EURJPY?
For the EURJPY hedge, you can choose other pairs whose movements are positively correlated.
I myself often choose EURUSD because both of them have euro instruments in them. But for taking Buy or sell action, we will see the potential for the daily range of the two pairs and the trend in the pair with the highest daily range.
So for example the current daily range of EURUSD is 84 while the daily range of EURJPY is 78. So the position to be taken is to see the EURUSD trend. Say now it is bearish so I will open short EURUSD and Buy EURJPY positions.
Usually, if the EURUSD downtrend is stronger it will generate accumulated profit. Even though the Buy EURJPY position is also negative.
This is only for a simple hedging strategy, even without a stop loss if there are no shocking conditions. Even though facing a floating loss is also not more than 100 pips.
Even though EURJPY is a cross pair because the average daily range is high. This is one of the traders’ favorite pairs in capturing trading profits.
You may need to check the spread fee on this pair at your broker. Because the low spread fee benefits the trader.
And finally, this article is only for education and not investment advice. All risks that occur are the responsibility of each trader.
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