EUR/JPY Trading Tutorial

Many forex traders are unaware of the difference between major currency pairs and cross currency pairs. They don’t know the benefits of exchanging cross pairs.

In this article, you will learn how effectively trade the EUR/JPY pair, the different strategies for trading this pair, and the factors that affect trading. Before diving directly into the procedure, we will discuss some basic things about the EUR/JPY pair.

In the EUR/JPY pair, the base currency is EUR, while the JPY is the secondary or quote currency. Thus, the EUR/JPY shows the number of Japanese yen required to exchange in one EURO. If you are a forex trader and are unaware of the advantages of trading the EUR/JPY cross pairs, then here are a few advantages of EUR/JPY cross pair trading.

• The price action of the EUR/JPY cross pair is more smooth and trendy than the major pairs.
• US news releases result in more spikes in US dollar currency pairs. So, trading would be advantageous because of the sudden price spike of this currency.

Background

The official currency of the European Union, the Euro, was introduced in 1999. At the start, it faced a lot of economic and political challenges, but the introduction of the Euro is responsible for the stabilization of the European economy.

Naturally and logically, its introduction turned an old age ambition into a reality that gave people more freedom and upgraded monetary cooperation.

In 2008, it faced its first predominant test. This was when the Eurozone fell into a massive economic downturn. It confronted further intimidation after the prominent members like Italy, Greece, and Spain faced a debt crisis. As a result, high pressure stacked up on the common currency. In 2019, the Euro was the second most traded currency. It fell between the US dollar, which was the first, and the Japanese Yen, which was the third most traded currency in the world.

The Meiji government first adopted the Japanese Yen in 1871, and it survived both world wars. Due to its strong industrial base, the Japanese Yes has grown a considerable value. The ultramodern industrial base of Japan propelled the Japanese Yen to international prominence.

The combination of Euro and Japanese yen is one of the favorite currency pairs of foreign exchange traders. ‘Euppy’ is another name used for this pair. In 2019, EUR/JPY was the 7th most widely traded forex pair in the foreign exchange market. EUR/JPY cross pair is the second-best traded currency pair over some past years. 

Price history of EUR/JPY

Since its introduction, the currency pair has undergone huge trends and high volatility. In October 2000, the EUR/JPY currency pair printed the lowest of circa 90.00. In July 2008, the EUR/JPY pair experienced an uptrend and attained the highest of circa 169.78.

The 2008 massive economic recession stacked pressure on the EUR/JPY currency pair, which rapidly dropped to about 115.00 till February 2009. When the ‘Abenomics’ (the nickname of financial policy) started operating, the EUR/JPY currency pair quickly reached circa 120.00. From then to 2019, the pair traded between 110.00 and 140.00.

How to trade the EURO / JAPAN YEN forex pair

Before you start trading forex pairs, you must first look for a broker. Here are 3 brokers that you should check out. You can test out their platform for free with the use of a demo account.

RoboForex

RoboForex is regulated by the IFSC and CySEC. When signing up with RoboForex, you can choose between 6 of the available account types. 

With only $10, you can start trading with RoboForex. It gives you the option to use a leverage of 1:400 up to 1:2000. The platform can be used on both desktop and mobile devices and it offers 24/7 support via live chat or email.

Vantage FX

Vantage FX is a well-known broker that is regulated by the VFSC and ASIC. It’s popular among traders mainly because of its user-friendly platform that can be accessed on any mobile or desktop device. It has no known inactivity or withdrawal fees and the platform features various tutorials and a live chat system so you can get in touch with their customer support representatives. 

Markets.com

Markets.com is a CySEC and FCA regulated broker that features an easy to use platform that is ideal for beginners. Its customer support system is quite knowledgeable and can easily be contacted. The platform contains helpful tutorials as well as various trading tools that can help you analyze the market or get new trading ideas. 

Once you have tested out the brokers mentioned above and picked one, let’s move on to how to trade this specific forex pair.

Traders can secure a significant amount of profit in a short time by trading this particular currency pair. High-profit gain is attributed to the high volatility of the EUR/JPY pair. Investors should note the policies and interest rates of the EUR/JPY pair that will affect the market price of these particular currencies as individual economies adopt these policies. It will also affect the volatility of the pair. Volatility measures how dramatically the market prices swap. Political, economic, and financial trends are major factors that affect the prices of both the Euro and Japanese Yen.

When it comes to trading this specific currency pair, one must look for the highest volatility and liquidity. You may also check the economic reports that can affect the trading between Europe and Japan to get more information before you execute a trade. People use CFDs (contracts for difference) strategy for trading. It is one of the easiest ways of trading, and it also allows the usage of greater leverage by the trader. More leverage means you can potentially earn more if you play your cards right. You can also use technical analysis while trading this pair to get more precise and thorough information on this particular currency pair.  

The EUR/ JPY currency pair is ideal for traders who are just testing the waters or just starting out. When using technical analysis, one must analyze the chart carefully, speculate the relationship of pairing, and look for the rise and fall of both currencies. Two major pairs, the Euro and the Japanese Yen, are exchanged in EUR/JPY exchange. If one wants to trade EUR/JPY pair, you won’t be buying it yourself. Instead, a bank will be responsible for buying both USD/JPY and EUR/USD to generate the cross. One thing that you should always remember is that trading two major pairs constitutes two transactions.

Contract for differences (CFDs) provides easy access to many markets for trading. Traders and investors love to work with CFDs. When trading, people analyze differently using different strategies. They technically analyze the EUR/JPY chart, look at the rise and fall of prices, and speculate the relationship of cross pair.

Before trading, one must know the concept of “leg” in forex trading. The number of legs means the transactions in trading a cross pair. Now you are willing to trade the EUR/JPY pair; again, you won’t buy both pairs yourself. A bank is going to have to purchase both USD/JPY and EUR/USD currencies to create the cross pair. It is very important for you to remember that there are two transactions when trading major currency pairs. However, there are four transactions in EUR/JPY trading which means that it implies four legs.

Have a sound knowledge of base and quote currency. Here is the step by step guide for trading EUR/JPY:

• The first step is to buy EUR and sell USD.
• The second step implies buying USD and selling YEN.
• The two USD legs (buying and selling USD) cancel themselves out; short YEN and long EURO are left.

 Best time for trading

The forex market is only open during the weekdays. It’s open 24 hours a day. However, depending on the time, you are executing your trades, trading the EUR/JPY pair can potentially give you more profits. So, consumers need to do a bit of research to help them figure out when is the best time to trade a particular forex pair. It is very important for you to also monitor the liquidity and volatility of the market.

8:30 in the morning, Eastern Standard Time, is the best time to trade this particular currency pair. The London and New York trading sessions overlap during busy news releases, and the markets are active and liquid due to this overlap.

The most basic but best method to figure out the best time for trading EUR/JPY is by taking a look at the ranking of currency pairs. Currency pairs are ranked by their average volatility per hour. This is specifically calculated in pips. According to one-hour chart statistics, 15:00 Greenwich Mean Time is the best time for trading the EUR/JPY. At this hour volatility of the EUR/JPY pair is 21.4 pips.

Similarly, by tracking the weekly trends, volatility ranks highest on Thursday. On Thursday, the average volatility of the pair is between 80 to 85 pips. With all things considered, Thursday is the ideal day to execute your trade.

Different trading strategies for EUR/JPY forex pair

Naturally and logically, a fair amount of forex consumers start off with a simple and basic buying and selling strategy. High levels of volatility create high chances of generating more profit for the traders. For example, they observe that a certain forex pair tends to rebound from a specific resistance or support level. They will then consider other factors that can enhance the accuracy of these trading indicators over time. Making a good forecast about EUR/JPY pairs needs you to analyze the EUR/USD and USD/YEN graphs and charts. 

Features of an effective trading strategy

An effective forex trading strategy has the following features:

• Selecting the market
• Position sizing
• Entry points
• Exit points
• Trading tactics

For trading in different forex pairs, there is a need to follow some strategies:

• Simple EUR/JPY Forex Trading Strategy
• The Price Action Forex Trading Strategy
• The inside bar strategy

Simple EUR/JPY Forex Trading Strategy

Trading EUR/JPY pair involves buying and selling EUR/USD and USD/JPY and EUR/USD. First, you must make sure not to fall into the incorrect trade. It is very important for you to know when the best time to execute a trade is. But you should also be aware of when you should completely avoid the forex market.

So, the high-quality time to take a seat out of the marketplace is:

• If EUR/USD goes up and USD/JPY goes down, you surely don’t need to trade EUR/JPY.

• If EUR/USD goes down and USD/JPY goes up, you don’t need to trade EUR/JPY.

In each case, the EUR/JPY could be flat.

Naturally and logically, this is something that you should consider applying to your strategy when trading because it prevents you from executing an awful or non-profitable trade. For EUR/JPY trading strategy, these particular currency pairs are utilized: EUR/JPY, USD/JPY, and EUR/USD. These pairs make a closed-loop system. The price action of these currencies depends on one another.

 Trading conditions

Before attempting any EUR/JPY trade, it is necessary to consider the “perfect storm setup.” Following trading conditions must be fulfilled for the EUR/JPY long trade setup:

• EUR/USD must be rebounding as well as hitting support
• USD/JPY must be rebounding as well as hitting support

Naturally and logically, EUR/JPY short trade setup must comply with the following circumstances:

• EUR/USD must be hitting resistance and eventually selling off
• USD/JPY must be hitting resistance and eventually selling off

Pros

• It is a fairly easy and simple strategy that even newbie traders can apply or follow.
• This strategy is powerful because EUR/USD and USD/JPY have binary movements, which means when they concern each other, the only way is up or down.
• This strategy can be used as a model or reference to trade the cross pairs.

Cons

• You have no freedom to choose since you only follow the trends; otherwise, you will lose or won’t gain at all.
• This strategy requires you to strictly follow the rules instead of analyzing the market yourself. This restricts your movement and only gives you two choices.

The EUR/ JPY Price Action Forex Trading Strategy

Price action strategy demonstrates the features of price movements. This movement analysis is in context to price changes in recent times. Price action is a strategy that allows the consumer to analyze the market and make decisions based on price movements. So naturally and logically, traders do not rely only on technical indicators.

It employs some technical tools to assess the past and recent movements because it does not rely only on the fundamental analysis factors.

A principal aspect of price action strategy is behavioral and psychological evaluation followed by the trader’s action. By following this strategy, traders are free to decide based on the given scenario. This decision is aided by subjective psychological and behavioral state and technical

analysis tools.

The Euro is considered a risky currency, whilst the Japanese Yen has a status of a safe currency. So, when markets are driven by risk appetite, then naturally and logically, EUR/JPY will switch to an uptrend by default. When risk aversion occurs, this pair will fall by a downtrend. Powerful trends and a lot of vitality are seen by these dynamics.

Advantages

• Price action strategy is beneficial for short to medium-term trading.
• You have the freedom of choice and can opt to go in any direction. You are not restricted by strict rules.
• This particular trading strategy is beginner-friendly and can easily be applied and used by any trader regardless of their experience. Any trading software application can be used.

Disadvantages

• Price action strategy is not favorable for long-term investments.
• Consumers can see many results of price actions.

The inside bar strategy

The inside bar is a famous reversal candle formation that uses only two candles. This strategy is used to see the short-term market trends before making the big moves. The inside bar demonstrates a trepidation of prices to move above/below the preceding candle high and low, showing market reluctance.

Identification of the inside bar pattern on the forex chart involves the identification of preceding trends using price action indicators and locating the inside bar pattern.

When the price has trended above (or below) for a prolonged time, the halt in price movement, naturally and logically, leads up to the reversal of the trend. 

Within a trending market, the inside bar shows a period of short-term strengthening with low volatility. Consumers then look to trade explosion after a new high/ lower trend forms.

In the chart below, lower lows and lower highs are seen in the preceding trend. Buying and selling against the trend is riskier, and the trader becomes more cautious. 

Pros

• The inside bar strategy is the most well-known strategy in the market. A lot of traders use this strategy. 
• Traders who are just starting out can easily pick up this strategy and understand inside bars.
• It creates chances for favorable risk-reward ratios.

Cons

• It signifies continuation or reversal patterns.

Each of these trading strategies yields different results and contain their own guidelines, rules, or conditions. So make sure to try them all out first on a demo account, if possible, so you can decide on which strategy best suits you. But keep in mind that there is no perfect strategy. And even if you do follow every single rule down to a T, you are not guaranteed a profit 100% of the time. Remember, a lot of factors should be considered when trading forex pairs. This is why regardless of which trading strategy you go for, you have to keep all these factors in mind: 

News

This is one of the most important factors because of how it affects the market. This is why long-time traders prefer day trading because of all the breaking news and updates. The rates and prices shift in response to news updates. Some news channels also offer analysis, closing prices recommendations, and prognoses. So, successful trading depends upon forecasting news and updates.

Some significant sources are:

• Bloomberg
• Google finance
• Reuters
• Forex factory
• Yahoo finance
• Risk management

All forex pairs, including EUR/JPY, are not free from any risk. High volatility can also show false or negative signals. Additionally, traders can be at risk if they are not careful when it comes to managing this risk. So, implementation of the risk management system is necessary. 

Many experts do not recommend risking more than 1-2% of the balance in a single trade. For example, if you have $70,000 in your account, you will not risk more than $700- $1400.Risk of not more than 1-2%. It will prevent you from huge losses, and you can be in the trading game for a long period. 

Trends in trading:

Following a simple forex pair, the EUR/JPY trading strategy relies on identifying the trend lines. This analysis can provide you with the necessary information regarding a competitive edge. High and low levels simply show when to sell and buy the pairs.

If you want to draw a trend line, take a 1-hour chart, and you will see a few points with peak rates brought up 1-hour chart, and you could see a few price peaks. You can draw a trend line by connecting the points. You need a minimum of two common points. You will get your resistance line once you connect the common points.

You can choose different time charts that suit you according to your trading style. The advantage of using trend lines is that you can analyze the trends easily. When there is a downward trend, you can choose a sell position as the rate matches the resistance value.  

So, once you draw the EUR/JPY trend line, you will exchange the currencies according to the direction of the trend. It will make a big difference to your profit regardless of whether you follow news updates, trend lines, timing, daily range, or pivot points. 

Timing

Mostly, the day trading of the EUR/JPY currency pair is successful. Particularly, optimal levels of volatility and volume are required. A significant part of using any strategy is to choose the best time to trade.

Just because the forex market operates 24 hours a day does not mean that you should trade the whole day. It is a misconception that greater profits can be earned through more and more trading.

According to the Asian session, 00:00 to 06:00 GMT is the time when EUR/JPY prices boost and gain momentum. After the closing of this session, the European session rejuvenates. Traders will see the maximum activity for EUR/JPY cross pair from 07:30 to 15:30 GMT. Expectations for that day often change at the beginning of this session.

You should start your daily price analysis early. The preparation should begin at least an hour before the opening of the forex market if you want a high profit at the end of the day.

Substantial bodies that influence EUR/JPY pair

European Central Bank (ECB)

The European central bank announces interest and the statement every month. ECB has an active role in the forex market. It has introduced policies to increase the money supply whenever the value of the Euro has slowed down. 

Bank of Japan (BoJ)

The largest influencer of the Japanese yen is the Bank of Japan. The announced prime interest rate statement has an involvement in the EUR/JPY currency pair market. Recently, the introduction of easing programs in the world by Japan has weakened the Japanese yen overall.  

Japan Statistics Bureau

EUR/JPY traders should continuously monitor the important news from the consumer price index, GDP figures, and Trade Balance numbers. Traders should follow the important news releases by the statistics bureau as the Japanese yen is a sensitive currency.  

EUR/JPY cross pair correlations

The EUR/JPY cross pair shows a positive correlation with the EUR/USD, CHFJPY, and USD/JPY. A positive correlation means that the price movement will be similar in these pairs. It implies that a rise in EUR/JPY will result in the rise of correlated pairs.

EUR/JPY shows a negative correlation with the USDCHF pair, which implies that price movements will

be opposite in these pairs. It means that when the USDCHF tends to rise, EUR/JPY will fall.

Conclusion

EUR/JPY price action is smooth in comparison to other major pairs. Strong trends are seen in the case of cross pairs than others. US dollar-based currencies show more spikes in rates due to the US news releases.

If you have a busy schedule and cannot trade during the best EUR/JPY hours, you can try trading on Thursday. As shown in the chart earlier, Thursday is the most active trading day for the EUR/JPY cross pair.

Naturally and logically, it will be a better approach for those who have a busy

schedule. It is better to trade EUR/JPY pair in forex trade due to

following reasons:

Low spreads 

Most Japanese cross pairs have relatively higher costs and spread. But the EUR /JPY pair is always available at low spreads that are competitive too. Naturally and logically, it lowers the overall trading costs of consumers.

Stock indicator

The EUR/JPY is a leading indicator for stocks all over the world. The correlation has always been profitable. Naturally and logically, the cross pair rises when risk is on while stocks are trending

higher. 

Volatility

The EUR/JPY cross pair has always shown reliable volatility than most trading pairs. Naturally and logically, consumers can find numerous trading opportunities using this cross pair due to decent volatility.

Predictability

Many forex currency pairs are conventional for misleading and deceptive signals. At the same time, the EUR/JPY pair shows more predictable signs. Therefore, it is easier to analyze and spot the reversals in this currency pair. 

Resources

Due to many reasons, technical analysis is much easier these days than before. It is easier to analyze charts and graphs with the help of trading tools and specialized indicators. Daily forecast and updates also enable the traders to analyze and conduct Elliot waves.

Trading vehicles

Due to the liquidity of this pair, traders can benefit from many trading vehicles that include futures, ETF, and options. Using these vehicles help traders in generating more profit.

Apart from benefits, there may be some risks of choosing this currency pair. Drawbacks of trading this currency pair include:

Competition:

The competition goes on with trading algorithms even with competitive higher rates. When you have all the data, analyzed charts, you still have to undergo automated competition with the bots entering or leaving the positions.

Education investment

EUR/JPY pair always responds to the market conditions. So, your decision of buying or selling the currency depends on historical data and chart analysis. Still, you have to keep using the tools and resources.

Leverage

As leverage amplifies the profit, it can also increase the loss percentage. So, without properly managing the money and risk, you can face a loss. 

FAQs