Japanese Yen Rate Update: EUR/JPY, USD/JPY. USD/JPY

JAPANESE YEN PRICE, CHARTS AND ANALYSIS:

  • USD/JPY Rises as the RBA continues the rate hike cycle and hints at further developments.
  • USD/JPY Closes the 200-day line and plans to return above 140.00.
  • EUR/JPY Reaches 15-Year High. Bullish momentum remains intact above 146.50.
  • RSI remains in overbought territory for all three JPY pairs, so a retracement cannot be ruled out.

BACKGROUND of JAPANESE YEN

The Japanese yen has struggled since last week’s Bank of Japan (BoJ) meeting, which struck a dovish tone with a promise to conduct a monetary policy review. Improving sentiment following positive U.S. earnings and rising rate hike expectations have caused the yen’s safe-haven appeal to suffer.

Rate hike expectations have increased, and central banks around the world holding on to higher rates for longer is at odds with the BoJ’s current policy. This has partly contributed to the yen’s struggles over the past week. This morning, the Reserve Bank of Australia (RBA) surprised markets by resuming its rate hike cycle, with Governor Lowe saying that the board had a strong consensus for a rate hike. The ECB and Fed meetings are coming up this week, with inflation continuing to be a hot topic in many developed countries.

In particular, with regard to the inflation problem, the ECB and BoE are expected to raise rates further in 2023, with Australian inflation now likely to be around 4%. If this divergence continues for the rest of the second quarter and the BoJ does not make any changes, the yen could have a bumpy ride ahead. However, a recent survey of economists suggests that the BoJ will change its yield control policy as early as June, which may be a bit too optimistic in my humble opinion. As the new governor Kazuo Ueda has already indicated, inflation data from Japan will also be crucial for further decisions by the BoJ.

RISK EVENTS IN THE UPCOMING WEEK

There are a number of risk events in the week ahead, particularly in Europe and the US, which could continue to impact overall sentiment as well as the yen pairs. EURJPY, USDJPY and AUDJPY face their biggest test as data continues to be released.

Key risk events to keep an eye on:

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PRICE PROMOTION AND POTENTIAL PRICING SETUPS

EURJPY

EUR/JPY daily chart

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Source: TradingView, created by Zain Vawda

EURJPY has continued to rally recently after bouncing off the ascending trend line from the March 24 low. The trend line has since provided significant support, pushing the euro to a 15-year high against the psychological 150.00 level.

The EURJPY seems to be a bit overextended after the recent rally as the RSI is now also in the overbought territory. The price action has also marked a new high, which could indicate a short-term reversal or pullback. A break below the psychological 150.00 level could result in the previous swing high at 148.60 serving as support. A break below the 148.60 support area will see the trend line come into play.

As the central bank battle continues, this week’s ECB meeting will be a key factor for EURJPY. Dovish rhetoric from ECB President Lagarde or a 50-Basis point hike could push the yen further into the doldrums with acceptance above the 150.00 handle key for immediate continuation.

USDJPY

USD/JPY daily chart

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Source: TradingView created by Zain Vawda

From a technical perspective, the USD/JPY broke through the trading range on the daily chart yesterday, where it has remained since early April.

A break and daily candlestick close above the ascending channel on Friday indicated that a significant continuation may be in the offing. Yesterday, USD/JPY tested the 200-day line, which the pair also failed to touch, closing above it for the first time since December 22. Again, the RSI suggests overbought conditions for the pair, which is supported by the recent higher daily high, and it could be that USDJPY retests the 200-day MA before attempting to retest the breakout from the trading range. 137.00, 135.00 and 133.00 are key support levels to watch, with a daily candle close below 133.00 invalidating any bullish bias.

AUSJPY

USD/JPY daily chart

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Source: TradingView created by Zain Vawda

The AUDJPY setup from last week’s article was undoubtedly the best as it rose over 400 pips from its lower high around the 88.00 mark. This level aligns perfectly with the preferred entry range (61.8-78.6 as discussed in last week’s outlook) when using the Fib retracement tool.

AUDJPY has been in an uptrend since its low on March 24. The movement since then is a clear indication that price action is underway as we have consistently seen higher highs and lower lows on the way to trading around the 92.00 level. Similar to EURJPY and USDJPY, the main concern is that the RSI is now also in overbought territory, while we have significant resistance around the 92.00 level and above at 93.00.

After the recent rally in the YEN pairs, it may be prudent to maintain a short-term outlook for the rest of the week. Strong uptrends are still in play, but a pullback could be imminent in the yen pairs.

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