Japanese Yen Price Action Setups: USD/JPY, EUR/JPY, GBP/JPY

Japanese Yen Talking Points:

• USD/JPY set a fresh low after the announcement of the Fed’s cut yesterday, but along with USD has rallied in the aftermath as the bank’s projections weren’t as dovish as what markets were looking for.
• Tonight brings the Bank of Japan rate decision and USD/JPY still holds within a range formation, while EUR/JPY has recently broken out from an ascending triangle and GBP/JPY remains near a recently-established yearly high.
• I look into all three pairs during each weekly webinar, and you’re welcome to join the next. Click here to register.

The Fed cut rates and warned of another 50 bps of cuts for this year and another 25 for next year, yet the US Dollar has rallied over the past two days and is now threatening a larger reversal formation on the weekly chart. DXY is holding resistance at a big spot, from the longer-term trendline that’s held support for the past month; but if we do see USD bulls push into the end of the week, forming a hammer on the weekly chart, the premise of bullish reversals will start to look much more attractive. Key for whether this happens will be the Bank of Japan meeting later tonight.

US Dollar Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

While the USD touched a fresh three-year low at yesterday’s rate decision before beginning the rally, USD/JPY has largely held well-above its April low of 140 and July low just inside of 142. Support yesterday showed right around the bullish trendline produced by this year’s higher-lows which is confluent with the 145.86 level looked at in the Tuesday webinar.

The fact that USD/JPY has been largely flat over the past six weeks even as DXY has melted down elsewhere, against the Euro and British Pound, highlights the deduction of Yen-weakness, which has been more attractive elsewhere in pairs such as EUR/JPY and GBP/JPY. That may remain the case as of right now, although if we get a similar reaction in USD/JPY as what showed around the last BoJ meeting, that could begin to shift.

It was the FOMC and BoJ meetings in late-July that led into breakout in USD/JPY. With rate cut bets being priced-out after the Fed, USD/JPY shorts were squeezed, with another gust of rally showing around the Bank of Japan meeting later that night. This allowed for a break of 150.00 in USD/JPY, and eventually a resistance test at 150.77 which was looked at in these articles. As I warned then, this was a tough move to chase and that proved to be the case when we saw a vicious reversal on that Fridy after the release of Non-farm Payrolls.

As we traded into August, with the USD continuing to head lower on the back of weakness in the labor market, USD/JPY held a flat, horizontal range, and this again illustrates that deduction of Yen-weakness.

In USD/JPY, there’s now an open door for bulls and if they do push through, which could allow for the bullish scenario in USD to brighten, opening the door to larger reversal potential in DXY. But, until that breakout shows, JPY-weakness may simply be more attractive elsewhere, as we’ve seen over the past few months.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/JPY

The main complication with EUR/JPY is historical in nature, and that’s a dearth of history above the 175.00 level. To this point there has been one single daily close in the pair above that price – and it was the day before the pair went into a 2000 pip reversal.

As chronicled in these pieces even going back to the July BoJ meeting, bulls have very much remained in control here and there’s still no evidence of that changing. But – the episode at 170.00 also highlights how impactful these round levels can be and if we do see buyers stretch up for a test of 175.00 before pulling back, there could be a case to be made for short-term reversal setups.

As for trends, bulls are still in order and the ascending triangle that’s built over the past month yielded to breakout today. That prior high at 173.90 is now support potential, and the 76.4-78.6 retracements that set prior support sets up as invalidation for longs and as a target for bears working off the 175.00 resistance thesis.

EUR/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/JPY

Sterling is messy after a BoE meeting earlier this morning, but similarly we saw GBP/JPY stretch up for a fresh high. In the pair it’s still the 200.00 level that stands out as important and there’s still evidence of increasing acceptance of that price followed by yesterday’s response to support, which held around a trendline projection that had previously made up an ascending triangle.

That trendline is near-confluent with the 200.00 handle now, and given yesterday’s bounce from 199.48, a 200.00 test, or slightly below, could even be justified as a higher-low to keep the door open for bullish continuation.

GBP/JPY Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist