EUR/JPY – Bullish Structure Prepares for More Upside

4 min read



Dear Traders,

The JPY is on the back-foot across the board. Investors are shrugging of f trade war news and ‘risk-on’ sentiment is building.

This post will provide an analysis of the EUR/JPY, including potential trade setups.

Bullish Price Structure Makes Case for Uptrend Continuation

The EUR/JPY has begun to produce a series of higher lows since the bottom of Mar 23. Similar to the USDJPY, we appear to be witnessing the early stages of a bull trend continuation. My previously posted longer-term EUR/JPY analysis highlighted that this pair has most likely completed a large expanding flat correction as wave 4 of a broader bull trend. The conclusion of this wave 4 correction has very likely occurred at the Mar 23 low (bottom left side on chart). The initial upwards thrust can be counted as one 5-wave impulse, which was followed by a deep double zigzag that retraced to the 61.8% Fibonacci level and bounced upwards again from there. We can count another two impulse waves to the upside since that bounce of Apr 4. The latest one broke the resistance trend line (white) of the previous downward correction and has established itself above it. In addition, short and long-term EMAs have come into bullish alignment.

JPY has consistently failed to produce fresh lower lows, in spite of trade war fears. It suggests that FX investors are not buying into the news and risk-on sentiment is establishing itself.

Price has to produce another bounce to the upside quite soon in order to validate the wave count shown in the chart above. A final retest of the white trend line may be in stall before uptrend continues (see black line scenario).

Alternatively we may yet see another impulse to the downside if the corrective structure since the Mar 27 high morphs into one larger flat pattern (see red line scenario). A retest of the 61.8% Fib level could play out in this case before uptrend resumes.

In any case, strong bullish continuation should only be a matter of time.

Trade Setups

I see two trade options in this current situation:

1: Long entries could be taken if price retests the white trendline and produces another bullish bounce with a strong 4 hour candle close.

2: It would be best to wait for a full 5-wave impulse to form to the downside if price break below the white trend line again, before entering any new long positions. Another bounce at the 61.8% Fib is likely. Any bounce around this level, in conjunction with a slow-down of bearish momentum and a complete subwave count should act as another good buying signal.

Ultimate Targets in both cases could be as high as 137.20 (the high of the preceding large-scale wave 3) and 142.50 (the -27.2% Fib target of large-scale wave 3). Interim targets can be gauged mainly by previous horizontal resistance levels.

All the best along your trading journey


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