The Japanese Yen (JPY) is currently navigating a complex landscape, with traders keenly anticipating the Bank of Japan’s (BOJ) upcoming policy review in approximately a month. This review holds significant weight, potentially signaling a shift towards a more hawkish stance in 2025. Despite prevailing Yen weakness across various currency pairs, Eur/jpy presents a compelling scenario for those anticipating a resurgence of Yen strength.
While USD/JPY closely mirrors the dynamics of the broader US Dollar (USD), and GBP/JPY exhibits its own unique patterns, EUR/JPY stands out as particularly sensitive to potential Yen appreciation. This analysis delves into the technical setups of EUR/JPY, alongside USD/JPY and GBP/JPY, to discern the most promising opportunities related to Yen movements.
EUR/JPY: A Closer Look at Yen Strength Potential
In contrast to USD/JPY and GBP/JPY, which are currently trading above their respective 200-day moving averages, EUR/JPY recently tested its 200-day moving average and encountered robust resistance. This rejection at the 200-DMA, coinciding with the 165.00 level, signals a potential struggle for EUR/JPY bulls. Adding to the bearish outlook, EUR/JPY breached the prior support level of 161.93, establishing a fresh lower low, even as USD/JPY and GBP/JPY found support.
Although EUR/JPY has experienced a recent bounce, the daily candle remains in negative territory at the time of writing, contrasting with the positive daily candles observed in GBP/JPY and USD/JPY. This relative underperformance further strengthens the case for EUR/JPY as a prime candidate for Yen strength strategies. The confluence of resistance at 165.00, highlighted in the daily chart analysis below, warrants closer examination in shorter timeframes.
EUR/JPY Daily Price Chart
Daily chart analysis of EUR/JPY showing resistance at the 200-day moving average and 165.00 level, indicating potential Yen strength.
EUR/JPY Shorter-Term Dynamics
Examining the 4-hour chart for EUR/JPY reveals a deeper retracement compared to USD/JPY and GBP/JPY. While those pairs have bounced back to levels of prior resistance now acting as support, EUR/JPY has descended further. The lower high preceding the recent sell-off in EUR/JPY was established at 163.90. Following this, the pair tested as low as 163.21 this morning. The subsequent bounce is currently testing the 163.70 swing level.
Crucially, the 163.90 level looms as a potential resistance point. For bearish momentum to persist in the short-term for EUR/JPY, bears would ideally need to defend this level. Looking at a broader perspective, the significant 165.00 resistance level, which rebuffed buyers last week and aligns closely with the 200-day moving average, must remain intact to maintain the possibility of deeper bearish movements in EUR/JPY. This confluence of technical factors underscores the potential for Yen strength to manifest more prominently in EUR/JPY compared to other JPY pairs.
EUR/JPY Four-Hour Price Chart
Four-hour chart of EUR/JPY illustrating recent price action and key resistance levels at 163.90 and 165.00, reinforcing bearish potential.
Contrasting Scenarios: USD/JPY and GBP/JPY
While EUR/JPY exhibits a clear setup favoring Yen strength, USD/JPY and GBP/JPY present different technical landscapes, leaning more towards potential Yen weakness under certain conditions.
USD/JPY: Mirroring USD Strength
USD/JPY has largely mirrored the movements of the US Dollar Index (DXY). Following a period of resistance around the 107.00 handle and a subsequent pullback, USD bulls resurfaced, propelling DXY back towards prior resistance. USD/JPY has mirrored this strength, suggesting a setup potentially favoring Yen weakness. This scenario would likely require continued USD strength, potentially breaking through the two-year range it has been confined within.
From a Fibonacci perspective, USD/JPY remains within a retracement zone derived from the July-September sell-off. The 76.4% retracement level capped last week’s highs, while the 61.8% retracement level at 153.41 supported yesterday’s lows. These Fibonacci levels define a current trading range for USD/JPY.
USD/JPY Daily Price Chart
Daily chart of USD/JPY showing Fibonacci retracement levels and mirroring of USD strength, indicating potential for Yen weakness.
USD/JPY Shorter-Term View
The 4-hour chart for USD/JPY indicates a defense of prior resistance, aligning with the psychological level of 155.00. For bullish continuation scenarios in USD/JPY, buyers ideally need to maintain support at or above this level.
Four-hour chart of USD/JPY highlighting support around 155.00 and potential bullish continuation scenarios.
GBP/JPY: Inflection Points Around Long-Term Gap
GBP/JPY presents a unique scenario influenced by a gap dating back to the 2008 financial crisis. While the British Pound (GBP) experienced significant weakness against the USD in early Q4, GBP/JPY’s decline was more measured. Of particular interest is the recent price action around the 193.61 level, the lower boundary of this historical gap.
GBP/JPY tested this 193.61 level yesterday, prompting a strong bounce of over 400 pips from trough to peak. The upper boundary of the gap at 198.08 has also acted as a significant level, contributing to the weekly highs over the past four weeks.
GBP/JPY Monthly Chart
Monthly chart of GBP/JPY illustrating the historical gap from 2008 and its influence on current price levels.
GBP/JPY Weekly Chart
The weekly chart reinforces the significance of the 198.08 level as resistance over the past month. However, the pullback from this level has found support at 193.61, and the 200-day moving average has also exhibited characteristics of resistance-turned-support recently.
Weekly chart of GBP/JPY showing resistance at 198.08, support at 193.61, and the 200-day moving average acting as dynamic support/resistance.
GBP/JPY Near-Term Dynamics
The 4-hour chart reveals a pullback following the bounce from 193.61. Currently, support appears to be forming around the prior swing resistance level of 196.15.
Four-hour chart of GBP/JPY demonstrating a pullback to support at 196.15 after a bounce from 193.61.
Conclusion: EUR/JPY Favored for Yen Strength Scenarios
While USD/JPY and GBP/JPY present intriguing technical setups, EUR/JPY emerges as the more compelling candidate for traders anticipating Yen strength. The rejection at the 200-day moving average, the breach of prior support, and the relative weakness compared to USD/JPY and GBP/JPY all point towards potential further downside in EUR/JPY should Yen strength materialize. Traders should closely monitor price action around the key resistance levels identified in EUR/JPY, particularly 163.90 and 165.00, to gauge the likelihood of continued Yen appreciation and potential trading opportunities in EUR/JPY.
— Written by James Stanley, Senior Strategist
