In forex trading, EUR/JPY refers to the exchange rate between the Euro/Japanese Yen – one of the most commonly traded currency pairs in the forex market. This article will cover the EUR/JPY characteristics and several useful tips to trade it.
The Euro – Yen belongs to the Cross category. The main reasons why traders like this currency pair include:
- Liquidity: The Euro and the Yen are two of the most liquid currencies in the world. Thus, trading the EUR/JPY can be done at any time.
- Low volatility: The EUR/JPY movements are relatively smooth, and its trends are fairly easy to trade.
- Low spreads: The EUR/JPY spread normally varies from 1 to 3 pips – low compared with most of the other cross currency pairs. A lower trading cost is always better, right?
Another advantage for EUR/JPY traders is that this currency pair has few drawbacks. The biggest one may come from the Euro – the base currency of the pair. The EUR is naturally a highly unpredictable currency as it relates to many countries.
Tips for Trading EUR/JPY
- Use Fundamental Analysis
When you trade EUR/JPY, it’s a good idea to look at the global economic outlook first. Why? It’s because the Japanese Yen is considered a safe haven currency; if the world economic outlook is faltering, then investors money will likely flow into the Yen and drive it higher.
Next, you should pay attention to high-impact economic data releases from the Eurozone and Japan. Some of the important releases that may influence the EUR/JPY exchange rate are:
- GDP reports
- Retail sales
- Employment data
- German Ifo Business Climate report
- French and German PMI
Announcements from the European Central Bank and the Bank of Japan are also important factors which affect the Euro – Yen. Therefore, you should also follow interest rate decisions from them as well as statements from their governors.
- Recalculate Pip Value Before You Trade
A common mistake among forex traders is forgetting to recalculate the pip value of each currency pair before opening a trade. The reason might be because most traders use USD-based trading accounts, and trade currency pairs that use the Dollar as the quote currency.
The EUR/JPY currency pair has the Yen as the quote currency, so if you open a position of 0.1 lots on this pair with an USD-based trading account, a pip value will not be worth $1. Currently, it’s only worth $0.9. However, this number may change at any time, so you should always recalculate the pip value before you start trading EUR/JPY.
- Don’t Trade Time Frames Less Than 1 Hour
Short-term trading is always a challenge to forex traders. With the EUR/JPY, it’s even more intense.
As we have mentioned earlier, the Euro is one of the hardest to- predict currencies. So, if someone tells you that you can make good profits by trading the Euro in the short-term, don’t believe them. The currency pairs containing EUR are usually difficult to day-trade, and the EUR/JPY is no exception.
Therefore, don’t gamble your hard-earned money with the EUR/JPY’s short-term moves.
The Bottom Line
Now you learnt about the Euro – Yen’s characteristics and discovered 3 tips to make better trades. If you can follow these tips when trading, you will find the EUR/JPY one of the greatest currency pairs to trade. Lastly, choose a broker that provides EUR/JPY with attractive trading conditions and responsive customer support.