Last week’s -3% decline marked the worst week since November for USD/JPY. However, the move was driven more by a resurgence in Japanese yen strength than outright US dollar weakness. The yen gained broadly against all FX majors, with weekly charts littered with bullish engulfing and outside candles, hinting at a potential inflection point in favour of further yen strength.
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That said, the rise in Japan’s bond yields has stalled as bond prices stabilised, which could take some wind out of bullish yen sails in the near term. Even so, with clear price action signals of yen strength on the weekly charts, asset managers holding net-long exposure in futures, and the potential for deeper pullbacks on equity indices, the core bias remains for a stronger Japanese yen in the coming weeks once minor retracements on the daily charts have played out.
Source: TradingView
Japanese Yen Technical Setups on USD/JPY, GBP/JPY, EUR/JPY and CAD/JPY
USD/JPY Technical Analysis: US Dollar vs Japanese Yen
Monday’s bounce in USD/JPY was almost inevitable. Thursday’s long lower wick failed to test the January low, before an end-of-day reversal saw USD/JPY close back above the 200-day EMA. Friday’s inverted pin bar then failed to retest the 200-day EMA, paving the way for a start-of-week retracement against last week’s sharp selloff.
Price action has also formed a three-day bullish reversal pattern (morning star), hinting at a deeper retracement in the near term for USD/JPY and a temporary pullback in Japanese yen strength.
USD/JPY bulls could target a move towards the 154 handle or the December low at 154.34 while price holds above Monday’s low. Rallies within Monday’s range may also be considered in pursuit of a more favourable reward-to-risk ratio. A sustained break above 154.50 would open the door for a deeper retracement towards the monthly pivot at 155.43 and potentially the 156 handle.
That said, I will be watching for signs of a lower high on the daily timeframe once the anticipated bounce in USD/JPY runs its course, as that would suggest the broader bullish bias for the Japanese yen remains intact. Bears may then look for another attempt at the January low.
However, a decisive break beneath the March high would be required before assuming a much deeper USD/JPY selloff is underway. A break of 150 would bring the 149 handle into focus near gap support, followed by lower gap support around 147.50, close to the high-volume node (HVN) at 147.38.
Source: TradingView
EUR/JPY, GBP/JPY and CAD/JPY Extend Pullback as Japanese Yen Strength Builds
EUR/JPY, GBP/JPY and CAD/JPY have each fallen more than 3% from their respective cycle highs as Japanese yen strength accelerates across the FX majors. While there are subtle structural differences between these yen crosses, all three remain trapped between their 50-day and 100-day EMAs. My bias is for last week’s bearish momentum in EUR/JPY, GBP/JPY and CAD/JPY to extend lower once minor near-term retracements have played out.
Source: TradingView
GBP/JPY Technical Analysis
GBP/JPY bulls repeatedly failed to sustain a breakout above 215 before momentum turned decisively lower, reinforcing broader Japanese yen strength. Prices have since found interim support around the 207.6 high-volume node (HVN) near the 208 handle.
While short-term momentum is attempting to lift GBP/JPY back towards 210 and its 50-day EMA, I am sceptical that bulls can extend gains towards 212. Instead, I am on guard for a lower high to form, followed by a break beneath 207.6 and the 100-day EMA, which would strengthen the bearish GBP/JPY outlook.
EUR/JPY Technical Analysis
EUR/JPY has also found support at its HVN near 181.06, with price yet to test the 100-day EMA. However, the prior swing low has already been taken out, tilting risks in favour of further downside.
Bears may look to fade rallies towards the 50-day EMA, positioning for a sustained break below the 180 handle. Continued yen strength would likely keep EUR/JPY under pressure in the weeks ahead.
CAD/JPY Technical Analysis
CAD/JPY differs slightly in structure, as it has so far held above its prior swing low. This suggests bears may prefer to wait for a larger corrective bounce to improve reward-to-risk conditions.
A break above 113 or a sustained move above the 50-day EMA could open a run towards 114. However, unless CAD/JPY can reclaim higher resistance levels, the broader bias still favours Japanese yen strength reasserting itself and dragging the cross lower.
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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