EURJPY Trading Strategy (Backtest)

Last Updated on September 22, 2022 by Oddmund Groette

The euro (EUR) and yen (JPY) are the most traded currencies after the USD. Just like the USD, the euro and yen are also held as reserve currencies by different countries. But what is EURJPY in trading?

EURJPY is a minor currency pair that compares the value of the euro to that of the Japanese yen. In this currency pair, the EUR is the base currency, while the JPY is the quote or counter currency. So, the EURJPY trading strategy is the act of exchanging JPY for EUR or exchanging EUR for JPY.

At the end of the article, we present a backtested EURJPY trading strategy.

In this post, we take a look at EURJPY currency trading.

What is EURJPY?

The EURJPY simply refers to the forex quote for the euro against the Japanese yen exchange rate. That is, it compares the value of the euro to that of the Japanese yen. In forex trading, EURJPY is a minor currency pair. In this currency pair, the EUR is the base currency, while the JPY is the quote or counter currency.

EURJPY is considered a minor pair because it is formed by cross-pairing EURUSD with USDJPY. In forex trading, currency pairs are categorized according to their liquidity and trading volume — if there’s a lot of activity in the market, it’s classed as a major pair, and if there’s less activity, it’s regarded as a minor pair. Since USD is the most traded currency in the world, currency pairs of the major economies against USD are regarded as ‘major’, while a cross pair of major currency pairs are regarded as minor.

A cross pair is a net currency pair position formed by trading two currency pairs with one common currency (often the USD). EURJPY is a cross pair of EURUSD and USDJPY. So, a net long EURJPY position (selling JPY to buy EUR) is achieved by going long on USDJPY and EURUSD simultaneously — selling JPY to buy USD and using the USD to buy EUR. On the flip side, a net short EURJPY position (selling EUR to buy JPY) is achieved by simultaneously shorting EURUSD and USDJPY — selling EUR to buy USD and using the USD to buy JPY.

In essence, trading the EURJPY currency pair is the act of exchanging one currency for another with the USD as the medium for the exchange. Traders are able to profit from such exchange when the value of the currency they exchanged rises relative to the other.

Is EURJPY good to trade?

Yes, EURJPY is good for trading. Although the currency pair is not one of the major pairs, there are many reasons we think it is good for trading. These are just four of them:

  1. The constituent currencies are very popular: Both the Euro and the Japanese Yen are ranked amount the top eight currencies in the world. In fact, they are the most traded currencies after the USD. Just like the USD, the euro and yen are also held as reserve currencies by different countries. This makes the euro and yen cross pair the most liquid outside of the U.S. dollar-based “majors.”
  2. Volatility: The EURJPY pair often shows high levels of volatility, as the price swings significantly in different directions. This provides opportunities for traders to profit from steep price swings.
  3. Relative predictability: The currency markets are well-known for misleading signals, but the direction of the EURJPY is often more predictable. As a result, EURJPY may be easier to trade than other forex pairs.
  4. Competitive spreads: Even compared to many of the major currency pairs, EURJPY tends to have competitive spreads. This can affect profitability.

EURJPY and USDJPY correlation

In forex trading, correlation is a statistical measure of how closely two currency pairs move — the greater the correlation coefficient, the more closely aligned they are. A positive correlation means that the values of two variables move in the same direction, while a negative correlation means they move in opposite directions.

The price movements of EURJPY and USDJPY are often significantly correlated. Sometimes, the correlation coefficient gets up to or even more than +90% (+0.9). At such times, opening a position in both currency pairs may come with a lot of risks as it would almost be equivalent to carrying a double position in any one of the two pairs. Whatever affects one is 90% likely to affect the other.

EURJPY trading strategy
EURJPY trading strategy

Source: Myfxbook

Best time to trade EURJPY?

For day traders, the best time to trade EURJPY is during the Asian session and the European session. During the Asian session, 23:00 to 06: 00 GMT, the Japanese market is open, which drives trading in the currency pair. Similarly, during the European session, 07:00 to 15:00 GMT, the European markets are open and drive trading in the currency pair.

EURJPY trading strategy

A EURJPY trading strategy is coming soon.

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