USD/JPY, EUR/USD Forecast: Two trades to watch

USD/JPY falls after the Japanese election

USD/JPY is falling amid a stronger yen after Japanese Prime Minister Senae Takaichi’s election victory, reversing 6 days of declines.

The yen initially pulled back slightly immediately following the election on Sunday, reaching its weakest level in two weeks before strengthening against its major pairs.

The expected weakness hasn't yet played out, with investors giving Takaichi the benefit of the doubt in a "sell the rumour, buy the fact" reaction.

The election has given Takaichi a stronger mandate for pro-growth policies, although concerns about debt dynamics have been weighing on the market in the lead-up to the election.

Investors are also wary of the 160 line in the sand, widely regarded as the threshold for intervention.

The yen could be in line for further volatility as the market assesses the implications of the Liberal Democratic Party's landslide victory and the stronger mandate for fiscal expansion.

However, it's worth noting that the finance minister did calm some concerns over the outlook for stimulus spending in a country whose public finances are already under strain.

Meanwhile, the U.S. dollar is falling against its major peers ahead of a key week of data releases, including retail sales, core inflation, and the nonfarm payrolls report.

The market is pricing in a 15% probability of a 25-basis-point rate reduction at the March meeting, down from 18% on Friday.

It's also worth noting that Chinese regulators have advised financial institutions to curb the U.S. Treasury exposure.

USD/JPY forecast – technical analysis

USD/JPY trades above its multi-month rising trendline and holds above its 200 and 50 SMA amid a bullish longer-term trend. However, the price failed to push above the 157.75 resistance.

Buyers will need to rise above this level to extend gains toward 159.45, the 2026 high and 160, the key psychological level. Above here, 162, the 2024 high comes into play.

Immediate support is being tested at 156.30, the 50 SMA. A break below here brings 154.50 into focus, the December low and below here 152.10, the 2026 low.

EUR/USD rises after EZ investor sentiment jumps

EUR/USD has extended gains above 1.1850 amid a weaker USD and improving eurozone investor sentiment.

Data on Monday showed that Sentix eurozone investor sentiment improved to 4.2 in February, up from -1.8 in January. This was well above the -0.2 expectation and marked the highest reading since July 2025. The current situation index also climbed from -13 to -6.8, its strongest level since April 2023.

The data suggest the recession phase has likely ended and an upturn is underway, although private investors remain somewhat cautious. Institutional investors appear to be turning decisively more optimistic, with professional expectations jumping to +24.

Inflation concerns have not really ignited despite volatility in the commodities market and firm oil prices.

Looking ahead, there are many ECB speakers, including Christine Lagarde. These speeches come after the ECB left rates unchanged at its February meeting and shrugged off cooling inflation to 1.7% and a stronger euro.

The U.S. dollar is under pressure versus its major peers, falling for a second straight session ahead of key economic data delayed by the partial government shutdown.

Markets will react to the January jobs report on Wednesday, with recent indicators pointing to a slower labour market. The postponed January CPI data is due on Friday.

The US dollar is also under pressure as risk sentiment improved, supported by a rebound in tech stocks, precious metals, and cryptocurrencies.

EUR/USD forecast - technical analysis

EUR/USD ran into resistance at 1.2080 before falling back to 1.1765, the descending trendline support. From here the price has recovered higher. Buyers will look to rise above 1.1875 resistance ahead of 1.20.

Sellers need to break below 1.1765 to create a lower low and bring 1.17, the round number, into focus. A break below here exposes the 200 SMA at 1.1620.