EUR/JPY Offers Volatility, Without Much USD Correlation

If you don’t want exposure to the US Dollar, EUR/JPY is a pair to consider.


Since February 20th, when the S&P 500 began selling off from its all-time highs, EUR/JPY has been trading in a volatile trading range between 116.12 and 121.40.  However, over the last 4 trading days, the pair has traded lower from 121.08 to today’s lows near 116.96, down almost 1.5% today alone.  Support doesn’t come in until 85/100 pips lower near 116.00, which is near the long-term downward sloping tending and they March 9th lows.

Source: Tradingview,

One reason for the move lower is because of USD/JPY, which has sold off from a recent high of 111.71 to today's lows of 107.00, while stalling between the 38.2% Fibonacci retracement level from the march 9th lows to the March 24th highs.  As of late, the pair has a high positive correlation with the DXY at +0.92.  A correlation coefficient of +1.00 means the pair move perfectly together in the same direction.  Currently, there is a close correlation.  Support is below at the 50% retracement level and horizontal support near 106.50. 

Source: Tradingview,

The other reason the EUR/JPY is moving lower is because of EUR/USD side of the equation.  The pair has been moving lower since Monday’s open.  The EUR/USD traded up to the 61.8% Fibonacci retracement level from the highs on March 9th to the lows on March 23rd before turning lower.  Support is at today’s lows near 1.0900.  Notice how highly negatively correlated the EUR/USD is with the DXY.  The current reading is -0.99.  A correlation coefficient of -1.00 means the 2 assets are perfectly negatively correlated.  This is sure pretty close!

Source: Tradingview,

With the EUR lower vs the USD, and JPY higher vs the USD (USD/JPY lower), it makes sense that the EUR/JPY would be much lower, especially with the high correlations that EUR/USD and USD/JPY have with the US Dollar.    However, when we take a look at the correlation of the EUR/JPY to the DXY, the correlation coefficient is only +0.27!  There is only a mild correlation to the DXY. 

Source: Tradingview,

Here’s the point:

With initial claims tomorrow and Non-Farm Payrolls on Friday, the US Dollar currency pairs may continue to be volatile over the next few days.  If you are looking for a currency pair to trade, but don’t want exposure to the US Dollar, EUR/JPY is a pair to consider. 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account