Japanese Yen Technical Analysis: USD/JPY, EUR/JPY, GBP/JPY, AUD/JPY

Japanese Yen Talking Points:

• Yen weakness has been back in-play in the week since the Bank of Japan rate decision.
• USD/JPY is fast approaching the 160.00 handle that was defended in late-April, but there are clean breakouts elsewhere, such as AUD/JPY which has taken out the 105 level for the first time since 2013. I looked into this last week as a pair to track for Yen-weakness ahead of the BoJ, and since then the ascending triangle formation has yielded to breakout.
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Yen-weakness remains in-play and USD/JPY has already pushed into some contentious area. The pair is making a fast run towards the 160.00 handle which is what the Bank of Japan had defended in late-April. As of this writing, the pair is a little more than 100 pips away from the big figure but given the fact that 158.50 hadn’t been in-play until bulls attempted to push the break in late-April, there’s been a relative dearth of price action in this vicinity in the 34 years since USD/JPY last traded this high.

There was a pullback last week, albeit brief, but price held trendline support before bouncing the day after. And each daily candle since last week’s BoJ meeting has been green (blue on the below chart), keeping bulls in-control of near-term price action in the pair.

USD/JPY Daily Price Chart

Will the BoJ Intervene Again if 160 Trades?

While it wouldn’t be unheard of for the BoJ to make a second attempt at intervention when a level came back into play, there are certainly risks, and the recent episode illustrates that.

The BoJ has basically burned $62 billion with an intervention that’s brought a net impact of ‘null.’ The takeaway, at this point, is the bank essentially brought a pullback that allowed bulls to re-load the trade while still clipping carry as the pair has gained more than 700 pips from the early-May low. That was when support showed at prior resistance – at the previous level the BoJ had defended at the 152.00 handle.

As I’ve written before, it seems that the primary hope for USD/JPY bears is a reversal in the US Dollar, which hasn’t been in the cards since last week’s FOMC rate decision. But, when we saw sizable pullbacks in Q4 of each of the past two years, that’s what was doing the driving as USD was selling off on the back of lower-than-expected CPI prints.

At this stage, there appears to be little scope for bears as the below weekly chart retains a bullish appeal as buyers have continued to respond to pullbacks, defend support and push in the direction of the pair’s carry.

USD/JPY Weekly Price Chart

EUR/JPY

While the USD has remained strong since FOMC, the same can’t be said of the Euro after the ECB kicked off their rate cut cycle a couple of weeks ago. In my opinion, this remains one of the more attractive backdrops for Yen-strength scenarios if it does come about.

The psychological level of 170.00 has been a line-in-the-sand for the pair; and there was a bit of bearish pressure last week after the BoJ rate decision. EUR/JPY dipped down to the trendline connecting last December and this March’s swing low, holding above the prior swing of resistance-turned-support at 167.39.

EUR/JPY is currently testing above the 170.00 handle but as you can see, there hasn’t been much bullish drive above that price level yet and if we do see Yen-strength re-appear, picking on the economy that’s already started to cut rates can make a strong fundamental case, and that’s matched by the lagging quality of the below chart when compared to other Yen-pairs.

EUR/JPY Daily Price Chart

GBP/JPY

GBP/JPY is battling its own psychological levels with the 200.00 area. When I looked at this last week, I continued to track the pair for bearish-Yen scenarios. And there could be some comparison with the above setup looked at in EUR/JPY.

If you look at the above chart, you’ll notice behavioral changes in the pair’s price action above the 170.00 level. And this really speaks to psychological levels in general. As humans, we can’t help but simplify (or try) when numbers and math are involved. This is why most retailers will price products ending in increments of 99 cents; because the price of $1.99 ‘feels’ much cheaper than just two cents less than $2.01. The pricing structure simply helps that store move more products because customers perceive a relative value, even if its only a couple of pennies.

Just take a trip down the aisle of any grocery store and you’ll see what I’m talking about. As humans we can’t help but value simplicity. But to that end, we also grade and judge based on that simplistic interpretation. This is why psychological levels can have such a large impact in market behaviors, because we’re simply human and cannot avoid our own nature.

With a new psychological level coming into play, it can often take time to gain acceptance. And as we can see with 170 in EUR/JPY above, that still hasn’t quite happened as there’ve now been two separate tests (with a current third taking place), and buyers haven’t been able to substantiate any significant run above the big figure.

In GBP/JPY below, we can see what appears to be greater development of that acceptance over the 200.00 level. There were similarly multiple tests above the big figure that had failed and last week showed a pullback after BoJ, with support showing at the trendline. But since then, bulls have shown increasing aggressiveness and at this point, there’s been a bullish trend starting to take shape above the major psychological level, indicating greater acceptance than what we had looked at previously.

GBP/JPY Daily Price Chart

AUD/JPY

They say you should always lead with strength but, today, I’m going to finish with it.

I had looked into AUD/JPY ahead of last week’s BoJ and at the time, the pair was set up in a bullish manner with an ascending triangle formation and horizontal resistance at a major spot on the chart. The 105.00 level had only traded briefly in 2013, leading to a strong pullback; but since then, there had been no tests above that price in more than a decade.

It came close in late-April before the BoJ intervened to defend 160.00 in USD/JPY, but the pair fell 3.9 pips short of a 105.00 test. The pullback from that made a fast move down to another psychological level, and we can see that scenario in reverse, as bears were able to test just inside of the 100.00 handle, after which bulls jumped on the bid as the pair seemed a ‘relative bargain’ at the time.

And just like there was lacking acceptance for bulls above 105.00 at the time (or 170.00 in EUR/JPY or 200.00 in GBP/JPY), the pair pulled all the way back to the 100.00 level at which point bears failed to gain acceptance below the big figure.

That led to a strong support bounce and by the end of May AUD/JPY was already back up to test the horizontal resistance zone.

AUD/JPY Daily Price Chart

Through early-June trade that resistance zone had continued to hold, but it also brought a diminishing marginal impact which is highlighted by the continued hold along the bullish trendline. This is what makes an ascending triangle, as bulls continue to take shots at taking-out resistance until, eventually, resistance either gives way or bulls throw in the towel.

The breakout at this point has been incredibly clean and one-sided. The question now is whether there’s pullback potential as the 105.00 zone that held as resistance hasn’t yet shown much for support.

AUD/JPY Four-Hour Price Chart

--- written by James Stanley, Senior Strategist