USD/JPY the USD Macro Driver as EUR/JPY, GBP/JPY Pull Back

The beauty of price action is that it’s objective. While headlines and ‘reasons’ and fundamentals can often shift impact the thing that matters most, the item that runs through stops or causes margin calls, simply ‘is what it is.’ As human beings we often want to associate some reasons for why price did whatever it did and in many cases there’s an easy or simple justification for that. But, not all the time, and it’s when there’s this apparent divergence that matters can be most interesting because that’s when price is highlighting that something may be even more important than what’s obvious in the headlines.

As we came into this week with Japanese elections last weekend the wide expectation was that a win for Sanae Takaichi’s LDP party and coalition would lead to a strong move in USD/JPY after the pair posed a sizable recovery in the prior week.

Initially, that presumption was correct – but it did not last for long. Price started to sell-off shortly after and the Monday daily bar finished as a massive bearish engulf, which then saw continuation for the next few days.

USD/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

That theme of divergence extended again yesterday following a fairly strong showing in the NFP report. It was better than expected for the headline print, the unemployment rate and Average Hourly Earnings, which was, again, followed by a logical initial reaction as both the Dollar and USD/JPY jumped.

But, like we saw on the Sunday open, that rally was quickly faded and sellers soon took back over. In USD/JPY, it was where this pivot happened that’s of interest, as it was right at the 154.45 level that I had highlighted in the webinar the day before.

USD/JPY 5-Minute Chart

Chart prepared by James Stanley; data derived from Tradingview

As you can see from that short-term look above, there was another bearish reaction this morning, this time in response to a resistance test at 153.67. The pair pushed up to that level briefly and was, again, hit by sellers following a rally, with price reverting back to the 152.50 level that sellers haven’t been able to do much below yet.

USD/JPY 30-Minute Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Big Picture

As we go into tomorrow’s US CPI report the big question is whether we’re seeing a building case of carry unwind in the USD/JPY pair. As I shared in the Tuesday webinar, given the price reaction that we’ve seen to what would be expected as positive stimuli for the pair, it appears that something else is going on. Perhaps it is intervention to some degree as both US and Japanese officials have openly stated that they want prices in the pair to be lower and with a Takaichi win and a strong NFP report there was motive for bulls to make a push?

Or, this could just be positioning-related as those still holding on to hedges for the carry trade cut bait.

At this point there could still be a bullish reaction similar to what we saw two weeks ago when buyers showed up just above the 151.95 level. That price remains important, but if we see it give way, the door opens for runs down to 151 and then 150. If we see that latter level taken out, then something has changed and we could be in a bigger episode of carry unwind for the Japanese Yen.

USD/JPY Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/JPY

EUR/JPY came into the week with a support test at the 185.00 handle, but matters turned on Tuesday as an evening star formation formed, and that’s so far continued with a fall down to fresh 2026 lows.

At this point, there’s short-term resistance potential at prior support, from around 182.65-183.16, and then there’s the 184.28 level above that. For deeper support, it’s all about the 180.00 level that was last in-play in November/December, setting the lows before buyers rallied up to a fresh ATH.

EUR/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/JPY

GBP/JPY set a fresh 18-year high just last week, and this followed a strong showing at support around the 210 level which further illustrated that response from buyers following the initial pullback.

This pullback, however, has taken more scope and price is now digging into a level of prior resistance at 208.00.

GBP/JPY Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro