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Japanese Yen Outlook: USD/JPY Breaks Out in Style, GBP/JPY and CAD/JPY in Focus

USD/JPY breaks higher as Japanese yen weakness persists. See why GBP/JPY remains bullish and how crude oil could shape the next move in CAD/JPY.

Matt Simpson
Matt Simpson

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Japanese Yen Outlook: USD/JPY Breaks Out in Style, GBP/JPY and CAD/JPY in Focus

USD/JPY has finally broken higher after weeks of compression, with easing bearish sentiment towards the Japanese yen adding fuel to the rally. While the US dollar led the move, the technical backdrop also favours further upside for GBP/JPY, although crude oil prices remain a key variable for CAD/JPY bears.

 

Daily market performance dashboard showing forex, commodities and indices, with percentage changes, trading ranges and 52-week positioning.

Source: LSEG

 

 

 

USD/JPY Leads as Japanese Yen Weakness Keeps GBP/JPY and CAD/JPY in Focus

It only seemed a matter of time before volatility erupted on USD/JPY, given the compression pattern beneath its 39-year high. Momentum ultimately broke to the upside, helped by a strong session for the US dollar amid the latest flare-up in Middle East tensions.

As noted in this week’s COT report, net-short exposure to the Japanese yen has moved away from a sentiment extreme. That removes some pressure from bearish yen positions and gives the USD/JPY breakout more breathing room. The question now is whether other currencies, such as the British pound or Canadian dollar could also take advantage of the weaker yen.

COT report shows Japanese yen futures positioning as net-short exposure eases from extremes, supporting the USD/JPY breakout.

Source: CFTC (COT), LSEG

 

 

For traders wanting a deeper understanding of futures positioning, I’ve also published a guide on how to read and interpret weekly COT data in forex markets.

For traders wanting a deeper understanding of futures positioning, I’ve also published a guide on how to read and interpret weekly COT data in forex markets.

 

 

Whitepaper
Whitepaper

 

 

USD/JPY Tests Trendline Resistance After Breakout

Regular readers will know I am not an advocate of trendlines, but I concede they deserve attention from time to time. In this case, a trendline projected from the January high coincides with Tuesday's high, making it a valid interim resistance level. It is also one that could break, given the strength of the move out of the compression pattern.

The monthly R1 pivot (163.72) and 165.30 may be the next resistance levels for bulls if the trendline breaks. That said, prices appear stretched on the 1-hour chart, while bearish RSI divergences have formed in overbought territory, raising the potential for a near-term pullback. Bulls could look to buy dips within Tuesday's range, with 163 potentially providing support.

USD/JPY daily and 1-hour charts show trendline resistance, monthly pivot levels and bearish RSI divergence near 2026 highs.

Source: ICE, TradingView

 

 

 

 

GBP/JPY Bulls Eye 219 as British Pound Holds the Advantage

The GBP/JPY uptrend on the daily chart speaks for itself, with bullish momentum accelerating from the June low. Prices have retraced to the 10-day EMA and the monthly R2 pivot, while Tuesday's wide-legged doji has caught my eye as it hints at a swing low forming within a strong uptrend.

Price action on the 1-hour chart appears corrective, given the overlapping nature of the decline. Moreover, elevated volumes accompanied the swing low, reinforcing my suspicion of bullish accumulation above 217.50. GBP/JPY is now attempting to form a higher low around the 218.00 handle and the weekly pivot point.

Ultimately, my near-term bias for the British pound against the Japanese yen remains bullish while prices hold above Tuesday's low, with a move to 219.00 as the minimum upside target. Note the July 2007 low at 219.036 and the 219.61 high as additional resistance levels ahead of the weekly R1 pivot just below 220.00.

GBP/JPY daily and 1-hour charts show British pound uptrend, bullish pullback and support above 217.50 against the Japanese yen.

Source: ICE, TradingView

 

 

CAD/JPY Reversal Pattern Faces Crude Oil Headwind

The daily chart shows an evening star pattern (a three-bar bearish reversal) forming around the 116.00 handle, warning that a top may be in place. Tuesday's small bullish inside day represents a lacklustre attempt by bulls to reclaim lost ground, and the fact it closed around the monthly R1 pivot suggests CAD/JPY could be gearing up for another leg lower.

However, rising crude oil prices are a fly in the ointment for CAD/JPY bears. As a major oil exporter, Canada typically benefits from higher crude oil prices, which can underpin the Canadian dollar against the Japanese yen. If crude oil continues to rally, it could support CAD/JPY, or at least make life more difficult for bears. Conversely, if Middle East tensions ease and crude oil prices retreat, it could pave the way for the next leg lower in CAD/JPY.

A break below the weekly pivot point (115.31) would bring the weekly S1 level and monthly pivot point into focus near 114.50.

image-20260722084011-1image-20260722084038-2

Source: ICE, TradingView

 

 

 

View the full economic calendar
View the full economic calendar

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

 

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