Japanese Yen Forecast: The EUR/JPY and GBP/JPY Moves that Could Kick the Carry Trade Unwind into Overdrive

EUR/JPY, GBP/JPY Key Points

The massive “yen carry trade” unwind was technically- and sentiment-driven, and could absolutely run further after pausing for a few weeks.
EUR/JPY traders will only grow more constructive on the pair if it can regain the 200-day MA at 164.00.
A GBP/JPY break below the bearish flag could expose the early-month lows near 184.00, if not the 1-year lows at 179.00, in time.

After the “shock” unwind of the now-infamous yen carry trade to start the month, the key question traders have been asking for the last few weeks has been, “Is it over yet?”

Fundamentally speaking, the picture hasn’t changed much over the past few weeks – the Bank of Japan is still expected to incrementally raise interest rates in the coming months while other central banks cut their own target rates – but the driving factor behind the massive cross-markets moves we saw earlier this month were never fundamentally-driven in the first place.

Instead, they were more technically- and sentiment-driven in nature: As the yen broke certain resistance levels, it convinced more traders that the years-long carry trade may be unwinding, prompting them to unwind their carry trades, leading the yen to break more resistance levels and more traders to reconsider their positions in a vicious cycle.

This (perhaps too long) preamble serves to remind us that we could absolutely see another leg higher in the yen after nearly a half-decade downtrend following COVID. Below, we outline the technical setups to watch on two yen “crosses,” EUR/JPY and GBP/JPY.

Japanese Yen Analysis – EUR/JPY Daily Chart

Source: TradingView, StoneX

Looking at EUR/JPY first, the cross nearly fell to its 1-year low near the 154.00 handle in the peak of the panic on August 5^th, but the exchange rate has since recovered more than 1200 pips to trade back in the 162.00s as of writing.

However, EUR/JPY’s recovery has been far more tepid and gradual than the initial selloff, creating a possible “bearish flag” pattern on the daily chart. As the name suggests, the pattern has bearish implications if the pair breaks below the near-term rising channel (“flag”), and longer-term traders will only grow more constructive on the pair if it can regain the 200-day MA at 164.00. Until then, bulls may want to exercise caution in establishing new positions.

Japanese Yen Analysis – GBP/JPY Daily Chart

Source: TradingView, StoneX

Turning our attention to GBP/JPY, we can see a similar setup: The pair saw a massive selloff through late July and early August, culminating in a brief test of the 1-year lows (in this case at 179.00) before forming a gradual recovery/bearish flag setup below the 200-day MA.

Moving forward, bulls will want to see if GBP/JPY can break durably above its 200-day MA at 192.00 or whether the last 3 weeks represent a mere counter-trend correction against the strong bearish momentum. In that scenario, a break below the bearish flag could expose the early-month lows near 184.00, if not the 1-year lows at 179.00, in time.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.