USD/JPY and EUR/JPY: Diverging Setups Ahead of ECB and BOJ

USD/JPY is showing signs of weakness around technical resistance following the Fed's interest rate decision, while EUR/JPY is displaying early signs of a potential bullish reversal. With the ECB and BOJ meetings still to come, their respective policy outlooks could determine whether either technical setup delivers.

 

• USD/JPY is showing signs of weakness around technical resistance following the Fed's interest rate decision, while EUR/JPY is displaying early signs of a potential bullish reversal. With the ECB and BOJ meetings still to come, their respective policy outlooks could determine whether either technical setup delivers.
• AUD/USD gained on hotter Australian CPI and rising RBA hike expectations. CAD benefited from the BoC's 25bp hike and higher oil prices, while EUR/USD rose as the US dollar softened following the Fed's hold.
• The New Zealand dollar plunged 1% after the RBNZ unexpectedly held rates at 2.75%, disappointing markets that had almost fully priced in a 25bp hike.
• Gold rebounded from $4,000 support, helped by easing dollar strength and bargain hunting. Silver (+0.80%) followed gold higher, although elevated Treasury yields remained a headwind
• WTI surged on renewed Middle East supply fears following attacks in Saudi Arabia and Yemen. Copper benefited from firmer risk appetite.
• Equity indices: Nasdaq 100 futures benefited from renewed AI enthusiasm and the Fed's decision to hold rates. Japan's Nikkei 225 was supported by semiconductor stocks following strong earnings from SK Hynix.

 

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Central Bank Expectations Shape the Yen Outlook

Fed Holds Rates with Two Hawkish Dissents

The Federal Reserve held interest rates at 3.75–4% as widely expected, although the decision carried a hawkish undertone. Two policymakers dissented in favour of a 25bp hike, while the Fed upgraded its assessment of economic activity to a "strong pace" and acknowledged that inflation remains elevated. Markets continue to favour another hike in December, although subdued consumer confidence and hopes that energy prices could peak provide reasons for caution.

The Mattalytics chart shows markets pricing rates towards 4.6% by September 2027, well above the Fed's own projections. Interestingly, the market-implied path has softened slightly since 1 October, suggesting some caution over how far the tightening cycle might extend. The growing concern, however, is that elevated energy costs become embedded in the broader economy, forcing further hikes regardless of weakening sentiment. Time will tell – and the Fed has just bought itself some.

 

ECB and BOJ Decisions Put EUR/JPY in Focus

The European Central Bank is widely expected to hold its deposit rate at 2.50% on Thursday, although persistent inflation and elevated energy prices could keep the door open for further tightening. Markets favour another hike in December, but the Mattalytics chart shows expectations for the broader tightening cycle have softened considerably since 1 October. The market-implied rate for September 2027 has fallen by around 35bp to 3.1%, suggesting traders are becoming less convinced about how far the ECB will need to tighten.

 

 

Attention then turns to the Bank of Japan on Friday, where rates are also expected to remain unchanged at 1.25%. Markets are pricing around an 80% probability of a December hike, although the BOJ's market-implied rate path has also softened by around 7–10bp across 2027 since 1 October. Interestingly, the larger downward repricing of ECB expectations suggests the prospective interest rate differential between Europe and Japan has narrowed, which could weigh on EUR/JPY. That makes Lagarde's and Ueda's respective guidance particularly important, especially if one delivers a more hawkish message than markets currently anticipate.

 

 

USD/JPY and EUR/JPY Technical Analysis: Diverging Setups

USD/JPY Shooting Star Signals Resistance Ahead of BOJ

The not-so-hawkish Fed meeting saw the US dollar weaken against all FX majors, except the New Zealand dollar. This brought a three-day rebound on USD/JPY to an end, forming a shooting star reversal pattern around a high-volume node (HVN), between the 200-day averages. This strikes me as a strong zone of resistance for USD/JPY, and could tip the scales towards a bearish move if the BOJ delivers a sufficiently hawkish message.

The weekly and monthly pivot points sit either side of 157, making it a potential support zone for bears to target over the near term. Though for now, I am not convinced we will see a strong enough US dollar decline to justify a larger downside target. But technically, USD/JPY could manage a pullback from its current resistance zone.

 

EUR/JPY Falling Wedge Hints at Rebound Ahead of ECB and BOJ

EUR/JPY sits near its lowest level since November 2025 heading into today’s ECB meeting. While the trend is clearly lower, a potential falling wedge is forming above the November 2025 low and the gap formed following Japan’s October 2025 election. This does not guarantee a bounce – we’d likely need a hawkish ECB relative to a dovish BOJ to expect a strong upside move – but it is worth monitoring over the coming days.

If confirmed, the falling wedge projects an upside target around 180. Should bears retain control, a break beneath 175.56 opens up a run towards the lower gap at 173.18.

However, given the potential sentiment extreme I noted for EUR/USD, we could see EUR/JPY rally even as USD/JPY falls, should a bounce in the euro materialise.

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