USD/JPY Technical Outlook: Bulls in Control of the Steering Wheel
USD/JPY has been on a strong uptrend this year, making higher highs and breaking one technical resistance after another during its remarkable bull run, in which the pair managed to rise more than 9%, a significant gain by FX standards.
At the close of June, just before the start of the third quarter, the pair notched fresh multi-month highs, blasting past 142.50, the 61.8% Fibonacci retracement of the Oct 2022/Jan 2023 slump, as shown in the chart below. At the time of writing, it was too early to tell whether the breakout would hold, but if it did, bulls could gain confidence to initiate an assault on the 145.00/145.75 area.
In the event of a rally towards 145.00, traders should start to exercise more restraint and be on the lookout for possible foreign exchange interventions by the Japanese government. Any action taken to support the yen could unleash violent volatility, increasing the risk of price fluctuations triggering stop-loss orders on either side of the trade inadvertently. This is something for traders to keep in mind going forward.
If no FX interventions materializes, but USD/JPY extends its advance and clears the 145.00/145.75 zone decisively and on a sustained basis, buying momentum could gather pace, setting the stage for a rally toward the 2022 peak located slightly above the 151.00 handle.
On the flip side, if sellers return to the market and spark a bearish reversal, it is important to see whether USD/JPY can hold above 142.50. If it cannot, it may be a sign that bullish impetus is waning, in which case, traders should prepare for the possibility of a pullback towards support at 141.00/140.40. On further weakness, the next critical floor to watch stretches from 138.35 to 137.80, followed by 134.00.
of clients are net long. of clients are net short.
| Change in | Longs | Shorts | OI |
| Daily | 6% | 6% | 6% |
| Weekly | 6% | 10% | 9% |
USD/JPY Weekly Chart
Source: TradingView
EUR/JPY Technical Outlook: Strong Uptrend Running Amok
EUR/JPY has a similar technical profile to USD/JPY, but the uptrend is considerably stronger, with the pair up over 11% this year and at its highest point since 2008. That said, market dynamics will not change any time soon as long as the Bank of Japan maintains its ultra-accommodative stance, so the euro is likely to remain on a bullish trajectory against the yen in the near term.
Focusing on the key technical levels to watch, the pair was approaching the upper boundary of a long-term ascending channel at 157.00 heading into the third quarter. Price reaction around this technical resistance zone may offer important clues about the near-term outlook, but there are two possible scenarios to consider: 1) a breakout, and 2) a bearish rejection.
In the event of a sustained move above 157.00, there would be few obstacles to prevent bulls from triggering a larger rally; with no major technical resistance levels in play until the 169.00 handle, where several swing highs from 2007 and 2008 line up.
The other possible outcome worth discussing is a bearish rejection. If sellers fend off the attack on 157.00 and trigger a pullback, initial support appears at 151.75, with the next downside target at 150.00/149.45 on a push below this area. Beneath this floor, traders should keep an eye on 146.00/145.50, followed by the 200-day moving average located around 144.75.
of clients are net long. of clients are net short.
| Change in | Longs | Shorts | OI |
| Daily | 8% | 4% | 4% |
| Weekly | 17% | 7% | 9% |
EUR/JPY Bi-Weekly Chart
Source: TradingView
This article only covers the technical outlook for the yen. If you would like to learn more about the fundamental catalysts that may impact the Japanese currency in the medium term, download DailyFX’s complete their-quarter trading guide by clicking the link below. It’s free!
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