Japanese yen talking points:
Well, that’s probably not how the BoJ planned …
Governor Kuroda got off to a weak start with some warnings about the Yen, saying that the currency is rapidly depreciating and ‘this could cause problems for companies when making their business plans and we will have to take negative factors like this into account . ‘
Japan’s finance minister also stepped in, saying the massive fluctuations in the currency could be negative, after saying last week that the sudden drop in the currency was ‘very problematic’.
This is contrary to the BoJ promise to keep stimulus online and it creates divergence in yen pairs, as higher exchange rate regimes in the US, UK or even Europe have an unequal flow of capital between the currencies represented in the pair, create. And this is not a new thing either: I already highlighted this in September from last year when the FOMC began to increase the potential for interest rate hikes. A few weeks later in October, Yen sales have already started and as pressure from many western central banks increased to begin addressing inflation – those differences only grew to where we are today, with USD / JPY rising to another new 20-year high.
Such remarks are being closely watched to see when the Bank can actually step in, similar to what happened in 2015, as this is the clearest possible signal for when these Jen pairs may finally excel and begin to recover some of these recent gains. There is still little sign that this is happening.
USD / JPY
The head of USD / JPY is perhaps the most expressive as US rates continue to rise while Japanese rates are extremely low with little sign of change. And there are some amazing statistics here: USD / JPY is now working on its 13ste consecutive daily profit. And from the weekly chart, the pair are working on its sixth consecutive week of gains, pulling all the way back to early March.
It is the carry trade of power and it feels strengthened to some extent, as we have seen a rapid re-pricing of US tariffs so far this year. Below we can see a massive boom in March and so far in April, it has capitulated the pair to new 20-year highs.
USD / JPY Monthly Chart
Graph prepared by James Stanley; USD / JPY on Tradingview
The big question, of course, is how to trade such a trend and it can be difficult, because in essence the trader is struggling with an overbought market (which they expect to get even more overbought). And there are actually only two common ways to do this: Either hit the outbreak or wait for the withdrawal. I looked at the latter of these strategies in late March, just as USD / JPY retreated to find support at the 121.41 level. USD / JPY has since gained more than 700 pips.
However, if we look at shorter-term charts, there is a lack of nearby support potential, especially given the historical relevance of trading at new 20-year highs. But from the chart below we can see where the trend has been heating up recently as price has jumped past a bullish trend line that previously held the lows. And there hasn’t really been a pullback since that test at 121.41 at the end of March.
This indicates a short-term overbought scenario; but as we have seen here and hopefully, as many traders have learned from this episode, overbought on its own is not a clumsy thesis, as breakaway tendencies can only run through resistance, as price is even more overbought. This is the core of the outbreak state, and to learn more about working with it, the link below will give you access to a guide that discusses that strategy.
As for possible withdrawals – with a move that has been heated as much as it has done, it should be expected that corresponding withdrawals will also be quite large, similar to what was seen in the last episode when USD / JPY with more than 360 pips withdrew before you finally get support. The same 360 pips would have been seen as a massive move in the pair just a year ago, but in this episode it’s just a retreat.
As for nearby levels, there was a quick spot of resistance-twisting support at 126.55 that remains important. The previous 20-year high is down at 126.86 and can be considered an ‘s2’. But for ‘s3’, there’s a key spot on the chart, taken from the 125 psychological level that coincides with the 125.11 swing height from March.
USD / JPY Four Hour Price Chart
Graph prepared by James Stanley; USD / JPY on Tradingview
EUR / JPY Resistance
Okay, for those who want to get the yen really long with some withdrawal, they will probably want to do so in a pair with another potentially weak currency.
And the Euro was weak, even more so after last week’s ECB meeting highlighted a Central Bank that is apparently not open to higher rates, perhaps even more so than the BoJ. This is reflected in the massive trend in the EUR / JPY chart, as markets clearly illustrate the expectation of greater passive monetary policy. the BoJ as the ECB.
The pair made a wonderful turnaround in March for probably what is one of the biggest bullish engulfing candlesticks I have ever seen. An early month drop of 450 pips was reversed healthy and the month ended with a profit of 500 pips. The total range for March was a whopping 1,300 pips, and that theme has continued so far through April trading.
The 139.00 level is important for resistance: It is the 38.2% Fibonacci repetition of the 2001-2008 major move. It is also an area that held a lower high in the summer of 2015, and it was a level that the pair could not test in 2018 as that run came out at 137.50.
EUR / JPY Monthly Price Chart
Graph prepared by James Stanley; EUR/ JPY on Tradingview
EUR / JPY shorter term
That 137.50 level remains interesting, as this 2018 swing high also helped hold the 2022 high for about three weeks, until this morning’s outbreak. It can be an attractive area to seek long-term support in the pair; and if resistance does not stick to 139, there is another possible place at the great psychological level of 140 just above it.
EUR / JPY Daily Price Chart
Graph prepared by James Stanley; EUR / JPY on Tradingview
GBP / JPY
When I touched on the issue earlier this month, looking for expansions in these Yen trends, GBP / JPY was a focus chart for me as the pair has a very clean built-in rising triangle formation. Such setups are often approached for the purpose of bullish breakouts and a few weeks later that breakout is still going on.
Similar to USD / JPY, however, there is no clear indication that this run is even nearing its end point. Thus, the trader has the unenviable job of either chasing the outbreak higher while the market is already overbought; or try to be patient and wait for a withdrawal. Personally, I would rather go the patience route rather than force a loss on a suboptimal setup.
The level of 168.00 remains important, it is the 61.8% retracement of a big move from which the 38.2 retracement recently set support (in red, below). The 50% mark of that big move is close to the 160.00 level, which could create an interesting area of support potential if / when a withdrawal does occur. Short-term, a more close level at 165.69 can be looked for short-term support potential.
GBP / JPY Weekly Price Chart
Graph prepared by James Stanley; GBP/ JPY on Tradingview
AUD / JPY
To go back to last year and I even tried to work with this Yen theme back then. At the time, US rates had just begun to rise in anticipation that the Fed would make a hawkish turn while inflation raged in the background.
This led to a steady jump for returns in Q1 of 2021, but when it became clear that the FOMC was not yet approaching any interest rate hikes, those themes eased during Q2 and Q3 only to come back to life in Q4.
But – during that Q1 episode, there was one couple who looked especially attractive to me then and that allure remains more than a year later in AUD / JPY. At the time, the pair built in an inverted head and shoulder pattern with resistance around the 80 psychological level, a price the pair had previously had problems with and when it gave in, the 85 handle came in as the next place of resistance and that little or more helped keep the highlights through the rest of last year.
Buyer started returning to the driver’s seat by Q4 and in December the couple got engaged again above the 80 level.
And in March, the pair started testing the 85 level againwhich this time erupts and leaves it behind as bulls supported commodity currencies over the impressively weak Japanese yen.
Now the pair are approaching the next important psychological level at the 95.00 area, marking a new six-year high as bulls have remained large and in control. For traders who aggressively detect this Yen weakness, 95 offers breakout potential. For those who want to wait while they are patient, both 92.50 and 90.00 are nearby places of possible support, after which the 87.50-87.70 area comes into play as an ‘s3’ place of support potential.
AUD / JPY Weekly Price Chart
Graph prepared by James Stanley; AUD/ JPY on Tradingview
— Written by James Stanley, Senior Strategist for techlives.in
Contact and follow James on Twitter: @JStanleyFX