- The Japanese yen weakened broadly despite mixed performance on Wall Street, suggesting yen-specific selling pressure.
- Japan reaffirmed US–Japan currency intervention cooperation but stopped short of signalling imminent action.
- USD/JPY bulls eye 159.35 and 160, while EUR/JPY's falling wedge breakout opens the potential for a move towards 180.
- US midterm election results could trigger heightened FX volatility, with USD/JPY and EUR/USD showing the largest overnight implied ranges.
Japanese Yen Weakens as Intervention Threat Fails to Deter Sellers
Japan's finance minister reaffirmed US–Japan cooperation on currency intervention but stopped short of signalling imminent action, potentially giving yen sellers more confidence. The Japanese yen weakened broadly on Tuesday, despite mixed performance on Wall Street suggesting it was not simply a risk-on move.
Japanese markets were also closed for a public holiday, potentially amplifying currency movements. Higher US Treasury yields, Japan's relatively low interest rates and a lack of fresh hawkish surprises from the BoJ likely added to the pressure.
With USD/JPY and EUR/JPY both advancing, yen-specific weakness appears to be the dominant theme heading into the US midterm election results, although intervention risks remain.
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US Midterms Put FX Volatility in Focus
USD/JPY and EUR/USD have the largest overnight implied ranges heading into the US midterms, at 112 and 92 pips respectively. This points to potential volatility hotspots as election results emerge, with Asian traders keeping a close eye on how the results swing.
A Democratic sweep could weigh on US yields and the dollar, potentially dragging USD/JPY lower. Conversely, a surprise Republican sweep could lift yields and support USD/JPY, although risk sentiment and safe-haven yen demand could complicate the reaction.
Volatility could intensify between 8–10 pm New York time (12–2 pm Sydney), as major polls close and early results provide clues about congressional control. These are indicative windows rather than precise forecasts of when volatility will peak.
USD/JPY Bulls Eye 160 as Momentum Builds Above 200-Day Averages
Momentum accelerated higher on Tuesday, taking USD/JPY comfortably above its 200-day SMA (157.72), high-volume node (158.14) and marginally above its 200-day EMA (158.59). All of these could provide potential support over the next 24 hours if prices pull back.
But purely from a technical perspective, USD/JPY looks like a market considering a decent bullish breakout.
The 159.04 high is the first hurdle for bulls to overcome, sitting just under 40 pips away. That's a fraction of the 112-pip overnight implied range heading into the US midterms. Note that the weekly R2 pivot sits near a high-volume node at 159.35, which also aligns with the upper 1-day implied volatility band. Beyond that, the weekly R3 pivot sits near the 160 handle and the upper 5-day implied volatility band.
However, with the daily RSI(2) already overbought, a pullback or consolidation could come before any breakout.
With the US dollar holding firm and bullish momentum building, bulls may be seeking dips towards support, with 159.30 and potentially 160 on the cards while prices hold above the 200-day averages.
Source: ICE, TradingView
EUR/JPY Breaks Falling Wedge as Bulls Eye 180
We have finally seen the bullish breakout from the falling wedge pattern I had been circling for over a week. A multi-week bullish divergence formed on both the RSI(14) and RSI(2), with EUR/JPY now trading near an 8-day high after the falling wedge found support between the November 2025 and Japanese election gap lows. If successful, the bullish reversal pattern projects an upside target around 181.55.
A bullish trend has emerged on the 1-hour chart. The 20-bar EMA is providing support, while both the 20- and 50-bar EMAs are pointing higher, signalling strong momentum. Like USD/JPY, bulls may be seeking dips on EUR/JPY in anticipation of a break above 178, which could open a run towards 179 and 180 should the Japanese yen continue to weaken across the board.
Source: ICE, TradingView
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