Yen-Weakness Remains the Dominant FX Theme
There’ve been fits and starts of USD-weakness to start the year but so far, it’s the weakness in the Japanese Yen that remains the more notable item from the FX market. But, given how aggressively Japanese government bond yields have blown out the slower-paced sell-off in the Yen might be somewhat surprising.
As I looked at in yesterday’s webinar USD/JPY remains one of the most attractive major pairs if looking for USD-strength, and for a US Dollar that hasn’t really been all that strong elsewhere, that illustrates just how weak the Yen has been. This also means that that JPY-weakness can be perhaps even more attractive against a currency that has shown some relative strength, such as the Euro or the British Pound.
I’ve been on that theme for months now and both cross pairs remain in a bullish state, but the dynamics in the major remain important as this is the venue that will likely drive the Ministry of Finance to intervention, particularly if the pair perches above the psychological 160.00 level.
At this point, the daily chart of USD/JPY retains a bullish outlook as price has spent the past three days holding support at a bullish trendline connecting December and early-January swing lows. The 157.19 ‘decision point’ that I discussed in yesterday’s webinar is now yielding to buying pressure, which illustrates bulls taking a more proactive approach in trend continuation.
USD/JPY Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
USD/JPY
Given all that comes with a possible re-test of the 160.00 handle it makes the prospect of chasing USD/JPY, especially on fresh breakouts, a bit more daunting. So far, we’ve seen bulls carefully tread closer to the big figure, with the November swing high showing just below the 158.00 level and the January rally, so far, getting about 50 pips away from that big figure.
But – given the recent pullback there’s structure to work with, and the next point of short-term resistance is the 158.61 level, which would allow for pullback into prior resistance (which was also previous support) at 158.19. Beyond that, next resistance can be sought around the 158.80 level, after which the prior high at 159.46 would come into the picture. Beyond that, traders can look for topside breakouts into the 160.00 big figure.
USD/JPY Four-Hour Price Chart
Chart prepared by James Stanley; data derived from Tradingview
EUR/JPY
EUR/JPY built a clean bull flag into 2026 trade that led to a big breakout at last week’s open, with the pair jumping up to a fresh all-time-high. Similar to how a major psychological level can have impact without actually having to trade, we saw bulls shy away from a 185.00 test in late-December but the bull flag breakout last week was able to glide above that price, setting the fresh all-time-high at 185.54.
The back-half of last week brought a bit of mean reversion and the pair fell by more than 275 pips, but support held around the 183.00 level, and so far this week the rally has come roaring back with price reverting right back to that prior ATH at 185.54.
At this point, there’s a higher-low support test at 185.00. For bulls that want to treat this aggressively they can look for a hold at that price to allow for re-test and perhaps even break of the 185.54 high watermark.
Alternatively – for those looking to be a bit more patient or waiting for a cleaner element of support to present itself, the 184.44 level is of note, as this was resistance on multiple occasions and as of yet, has not shown for support.
EUR/JPY Four-Hour Price Chart
Chart prepared by James Stanley; data derived from Tradingview
GBP/JPY
I still prefer GBP/JPY for JPY-weakness setups and I explained this in detail in yesterday’s webinar. Since then, we’ve had a clean hold of higher-low support, right at the zone of prior range resistance, taken from the 211.42-211.59 level.
At this point, we have a resistance test at a spot of prior support, taken from the 212.60 level. The next point of key resistance is 213.50 after which the prior high would come into play at 214.30. Given the resistance test, there’s possibility for breakout strategies but for those looking to work with short-term trends, a pullback to and hold of support at 212.16 keeps the door open for bullish trend continuation setups.
GBP/JPY Four-Hour Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Market Analyst, Global Macro
