Euro's strong momentum, are you missing these trading opportunities in EUR/JPY?

There is an often-overlooked treasure in the forex market: the cross currency pairs. Compared to the major pairs, cross pairs sometimes experience greater volatility and offer higher profit potential. EUR/JPY is a typical example—it is one of the most traded yen crosses and is considered a lucrative opportunity by many seasoned traders.

Why is EUR/JPY worth paying attention to?

It’s 2024, and you’re still fixated on EUR/USD? That’s too conservative.

The reason EUR/JPY is attractive lies in its volatility characteristics. Last year, when the European Central Bank announced interest rate hikes, EUR/USD showed little movement, but EUR/JPY surged 1.1% within just 4 hours—more than eight times the movement of EUR/USD. The simple reason is—Japan’s long-standing zero interest rate policy creates a significant interest rate differential, offering excellent trading opportunities.

Another advantage is its strong correlation with other currencies. Analyzing EUR’s trend shouldn’t be limited to just EUR/USD; EUR/JPY, USD/JPY, GBP/JPY, and others are highly positively correlated. Understanding this linkage allows you to build more sophisticated trading strategies.

Look at history to find patterns

Want to catch the bottom or sell at the top? First, you need to know what EUR/JPY has done.

Around 2007, the euro was on a strong rally, with EUR/JPY reaching nearly 170—the euro was strong, and Japan’s economy was sluggish. But when the financial crisis hit, risk assets collapsed across the board, and safe-haven funds flooded into the yen, causing EUR/JPY to plummet to 112.

Then came the Eurozone debt crisis. From 2010 to 2012, this currency pair was repeatedly under pressure, with a low of 94. As the Eurozone gradually recovered and Japan implemented large-scale easing measures (Abenomics), EUR/JPY entered an upward cycle, approaching 149.

What about recent years? The ECB shifted towards rate hikes, while the Bank of Japan remains in its “warm embrace.” That’s why EUR/JPY has been hitting new highs in recent years—the power of interest rate differentials is that strong.

What’s next? Key factors to watch

How to analyze the trend of EUR? Mainly from four dimensions:

Economic data determines the fundamentals. GDP, inflation, unemployment rate—any surprises can drive currency movements. As European economic data continues to improve and Japan’s performance remains mediocre, EUR/JPY naturally rises. The reverse is also true.

Central bank policies are the drivers. Will the ECB continue to hike rates or start cutting? Will the BOJ change its stance? Once the BOJ breaks its zero interest rate policy, interest rate differential trades will unwind, the yen will sharply appreciate, and EUR/JPY could face a decade-long shorting opportunity.

Geopolitics and risk sentiment. Trade wars, elections, regional conflicts—any black swan event can trigger capital flows into safe-haven assets, pushing the yen higher.

Technical analysis should not be ignored. It’s a powerful tool for short-term trading.

Use technical indicators to spot trading opportunities

Want to find precise entry and exit points? Technical indicators can help.

RSI overbought strategy is very practical. When RSI crosses above 70 into the overbought zone and then falls back below 70, that’s a sell signal. In one past trade, after selling, it took 5 weeks for RSI to return to the midline of 50, and closing the position at that point, a position of 1 million euros earned 287,500 yen.

MACD golden cross for entry. Buy when MACD shows a golden cross; sell when a death cross occurs. In one example, after a golden cross, a death cross formed 19 trading days later, yielding a profit of 589,000 yen per lot. Although this approach has a longer cycle, its win rate is relatively stable.

In the short term, EUR/JPY is consolidating. When technical resistance is hit, combining RSI overbought signals or MACD death crosses can serve as sell signals. For medium to long-term trading, keep a close eye on BOJ policy moves and inflation data—once a policy shift is confirmed, shorting opportunities can be quite substantial.

Practical trading tips

Track economic data like CPI and GDP, especially when data exceeds expectations; closely monitor central bank officials’ speeches, as policy shifts often signal here; use charting tools combined with RSI, MACD, and other indicators; set clear stop-loss and take-profit levels, preferably based on channel midlines or previous highs and lows.

Analyzing EUR’s trend requires multi-dimensional thinking; don’t rely on just one chart. Combining fundamentals, technicals, and sentiment analysis will help you find your own opportunities amid EUR/JPY’s fluctuations.