EUR/JPY, GBP/JPY: Bearish Weekly Reversals Test Bullish Trends

• Bearish weekly reversal signals emerge in yen crosses
• EUR/JPY, GBP/JPY test uptrend support
• Momentum indicators turn more cautious
• Price action now key for confirmation

Summary

Yen crosses delivered a clear warning to bulls last week, with EUR/JPY and GBP/JPY both printing sizeable bearish reversal patterns on the weekly timeframe. While the broader uptrends remain intact for now, the emergence of these signals at elevated levels suggests directional risks may be starting to shift. The move was far from random, reflecting a combination of macro and market-driven forces that helped underpin renewed yen strength.

Yen Strength Finds Fundamental Support

Concerns surrounding a potential surge in JGB issuance eased last week, offering a plausible catalyst for a string of bearish reversal pattens that printed in the yen crosses. The shift followed the government’s pledge to limit the planned cut to the sales tax on food to a temporary two-year window, alongside speculation the measure may be funded through sources other than fresh debt. One possibility floated in markets involves tapping Japan’s sizeable foreign currency reserves, revalued higher during the prolonged period of yen weakness.

Whether the reaction proves to be little more than a sell-the-fact adjustment or something more durable, correlation analysis points to the repricing of Japan’s fiscal risk as a key driver of last week’s moves. The outcome challenged the widely held assumption that Sanae Takaichi’s decisive election victory would pave the way for renewed yen softness.

Another factor underpinning the yen’s strength was a lift in market volatility, driven largely by unease surrounding capital expenditure plans flagged by major technology firms during earnings season. The scale of intended investment reignited debate over the risk of overbuilding AI infrastructure, particularly given its still evolving and, in many cases, unproven revenue profile. Layered onto this is concern that AI may disrupt existing business models across sectors spanning software, services and logistics. Against that backdrop, pockets of fragility emerged in areas that had previously led the risk rally, creating conditions consistent with defensive positioning.

Source: TradingView

Incoming US data did little to counter the move. Outside of January’s nonfarm payrolls report, most releases disappointed, including inflation and retail sales figures. When combined, it proved a potent mix for yen strength, while also reviving a familiar FX risk: that a stronger yen, rising short-end borrowing costs in Japan and softer performance across former risk leaders could trigger forced carry trade unwinds. Such episodes rarely unfold in a linear fashion, often gathering momentum as leveraged positions are reduced.

Freshly released Japanese Q4 GDP data may, at the margin, briefly ease pressure on yen crosses, but the broader policy signal looks largely intact. Economy-wide inflation, measured by the GDP deflator, remained elevated at 3.4% annually, suggesting limited scope for BOJ tightening expectations to shift meaningfully. GDP grew just 0.1% in the quarter versus 0.4% expected, with the miss largely reflecting a drag from private inventories and flat net exports, while household consumption was broadly in line with forecasts. With the fundamental backdrop still supportive of the yen, attention now turns to the technical signals emerging across the yen crosses.

EUR/JPY: Weekly Reversal Puts Bulls on Notice

Source: TradingView

EUR/JPY is now teetering just above the uptrend running from the April 2025 lows set during the Liberation Day risk rout, having delivered a bearish key reversal last week that also took out minor support at 182.00. Emerging after such a prolonged rally, the signal arguably carries greater weight, although price action this week looms as critical for confirmation. It is also notable that the pair repeatedly struggled to sustain gains above 186 ahead of the reversal.

Momentum indicators add to the more cautious tone. RSI (14) has eased back towards neutral levels, while MACD has crossed below its signal line despite remaining firmly in positive territory. Together, these shifts offer another warning that directional risks may be starting to tilt lower following an extended period of upside strength.

From a price perspective, 182.00 may now flip to acting as resistance following its break, leaving it and the April 2025 uptrend as the immediate technical levels to watch. A sustained bounce from trend support, followed by a move back above 182.00, would help steady the near-term outlook and may embolden bulls to seek another test of the January high at 186.88. However, a meaningful break beneath the uptrend would reinforce the bearish reversal signal, bringing levels such as 180, 178, 175.45 and 170 into focus for prospective downside setups.

GBP/JPY: Uptrend Support Faces Crucial Test

Source: TradingView

What stands out on the weekly timeframe in GBP/JPY is the sharp rejection from levels above 214, culminating in a sizeable bearish engulfing candle last week. The reversal followed repeated failures to sustain gains above the level; count them: one, two, three, four over the past month. Emerging after a sustained uptrend, the signal warrants attention, although price action this week looms as critical for confirmation.

The price now sits just above uptrend support dating back to the April 2025 lows, mirroring the setup seen in EUR/JPY. However, with the trendline already confirmed as support following three prior touches, and GBP/JPY also hovering above the July 2024 high at 208.15, we have an obvious downside level to watch.

Should GBP/JPY bounce from here, price action around 210 warrants close attention given buying interest previously emerged above the level ahead of the bearish reversal. A move back through this zone would improve the probability of a retest of 215 and potential resumption of the broader bullish trend. However, if the intersection of uptrend and horizontal support at 208.15 gives way, it would add to the risk of a more pronounced bearish unwind, bringing levels such as 205.35 and 200.36 into focus.

As with EUR/JPY, the message from the oscillators points to early evidence of a shift in momentum following a prolonged period of sustained upside pressure.