The Japanese Yen has regained significant strength, driving sell-offs in both USD/JPY and EUR/JPY over the past week. With the Bank of Japan’s (BoJ) policy review on the horizon, scenarios favoring Yen appreciation are gaining traction across major currency pairs.
USD/JPY: Yen Strength Emerges Amid Dollar Resilience
USD/JPY’s post-U.S. election rally has faltered despite broader U.S. Dollar strength. The pair recently hit a high at 151.95 before descending below key support levels at 150.77 and the critical psychological barrier of 150.00. Notably, the pair failed to reach new highs alongside the U.S. Dollar Index (DXY), which recently climbed to a two-year peak.
Technically, USD/JPY has been trading within a descending triangle pattern, with support levels aligning with Fibonacci retracement zones from the July-September sell-off. Resistance remains at the 76.4% retracement level near 151.95, while deeper support sits at the 38.2% retracement around 148.13.
The upcoming U.S. Non-Farm Payrolls (NFP) report could be a pivotal event for USD/JPY. A strong labor market report may support the U.S. Dollar, but the pair’s technical structure suggests that Yen strength may continue to dominate unless bulls can decisively reclaim higher levels.
EUR/JPY: Combining Euro Weakness with Yen Strength
EUR/JPY has been more susceptible to Yen strength, exacerbated by ongoing Euro weakness. Unlike USD/JPY, which has seen a gradual decline, EUR/JPY has experienced a sharper sell-off, recently trading below its 200-day moving average.
Oversold conditions on the daily chart present a challenge for traders considering short positions, but recent price action reveals a clear bearish trend. Support currently holds at a trendline derived from August and September lows, with additional levels of interest near 157.31 (76.4% Fibonacci retracement) and 158.04-158.24.
Should bulls attempt a rebound, resistance may emerge at 159.10 (61.8% retracement) and 160.00. Bears will likely defend the prior swing high at 160.34 to maintain control of the trend.
Key Outlook: Bank of Japan and Market Dynamics
The BoJ’s policy review, scheduled shortly after the Federal Reserve’s rate decision, is expected to amplify market volatility. The Yen’s strength against both the Dollar and the Euro underscores a broader shift in market sentiment, driven by expectations of potential changes in BoJ policy.
For USD/JPY, the interaction between Yen strength and U.S. economic data will be critical. In EUR/JPY, the combination of Euro weakness and sustained Yen appreciation suggests the pair may remain under pressure, with short-term rebounds providing opportunities for sellers to re-enter.
Technical Levels to Watch
- USD/JPY: Resistance at 151.95 and 150.00; deeper support at 148.13.
- EUR/JPY: Support at 157.31 and 158.24; resistance at 159.10 and 160.34.
As the Yen gains momentum, traders should remain vigilant for shifts in sentiment and data-driven market reactions, especially as major central bank decisions approach.
