Japanese Yen Technical Outlook: USD/JPY, EUR/JPY, GBP/JPY

Japanese Yen Technical Outlook Talking Points:

• The Japanese Yen has had a busy first-half of 2019, starting the year with a significant surge of strength that was slowly priced-out from January to April.

• The music has changed since early-May as items of risk aversion began to show. US stocks dove throughout last month, finally catching a bid around an early-June speech from Jerome Powell. But – noticeably, the Japanese Yen has not moved back into its bearish ways, retaining a tinge of risk aversion potential should matters again shift.

This year started with a bit of fright in the FX market as the anti-risk Japanese Yen saw a significant surge of strength around the 2019 open. Already many were calling this a ‘flash crash’ while it was more of a surge considering that JPY is the counter-currency in pairs such as USD/JPY and EUR/JPY; and that Yen-strength was correlated across a number of currency pairs.

But as the first few weeks of the New Year got underway, a bit of calm enveloped global markets and stocks continued to recover from their Q4 slump. That theme of a comeback continued through Q1 and well into the first month of Q2; but it was around the Federal Reserves most recent rate decision that this began to shift again. US equities began to sell-off again in early-May and Yen-strength showed-up along with it; as USD/JPY drove down to fresh four-month-lows until finally finding some support around the 108.00 level.

USDJPY Daily Price Chart

Chart prepared by James Stanley

So far in the month of June the risk trade has come back across a number of markets, with US stocks making a very fast return towards their prior all-time-highs. At the source of the move is an expected shift at the Federal Reserve in which the bank gets more dovish in their forward-looking projections; and this can be evidenced in Gold prices. But, as of yet, USDJPY has not recovered. The Japanese Yen has continued to harbor a bit of strength thats so far disallowed pairs like USDJPY or EURJPY to re-approach prior resistance. Begging the question as to whether the FX market may be highlighting an element of risk aversion that waits in the wings.

At this point, USDJPY is holding a zone of resistance as taken from a recent Fibonacci retracement. The major move that spans from November 2017 to March of 2018 produces a set of retracement levels that have already seen a number of inflections this year. A hold of resistance in this zone keeps focus on the 23.6% level from that same study, plotted around the 107.00 handle in the pair.

USDJPY Eight-Hour Price Chart

Chart prepared by James Stanley

EURJPY Retains Bearish Stance, but is Now the Time for a Breakdown？

The short-side of EURJPY was my top trade idea for 2019; largely based on the thesis of Yen-strength from ongoing risk aversion combined with the potential for a weak Euro as both political and economic issues remained in the spotlight. And similar to USDJPY, the pair jumped-lower after the 2019 open to spend much of the next couple of months in varying stages of recovery.

But – unlike USDJPY, that recovery only lasted into the March open, at which point Euro-sellers got into the mix and began to drive the pair-lower. Last week saw a key Fibonacci level come into play around 123.10, and bears have posed another bearish drive as EURJPY has trickled back-down below the 122-area.

Chasing from here could be dangerous given the potentially oversold nature of the current move. But – if that theme of risk aversion does show up, a break-below the 120.79 swing-low opens the door for a test of the 120 psychological level, and below that is another potential support point around the 119-level, which is the 23.6% retracement of the 2014-2016 major move.

EURJPY Daily Price Chart

Chart prepared by James Stanley

GBP/JPY Finds Fibonacci Support

Its been a similar theme of duality in GBPJPY so far this year. After a period of recovery in Q1, sellers have been back to erase a large portion of that prior move. Support has shown up this week around a key Fibonacci level at 135.87, as this is the 61.8% retracement of the 2016-2018 major move. This is the same Fibonacci study from which the 23.6% marker helped to catch the 2019 swing high at 148.69 back in March.

GBPJPY Weekly Price Chart

Chart prepared by James Stanley

At this point, prices in GBPJPY are pulling back towards trend-line resistance. This opens the door for a few areas of possible lower-high resistance, with the trend-line being a more aggressive area to follow. A bit-higher, the 137.50 psychological level remains of interest, and above that is the June swing-high around the 138.25 area. If that gets taken-out, were likely in for a deeper bullish move, and this puts focus on the 140 psychological area, which is confluent with the 50% marker of the aforementioned Fibonacci retracement.

GBPJPY Four-Hour Price Chart

Chart prepared by James Stanley

To read more:

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--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX