Japanese Yen Technical Analysis into CPI: USD/JPY, EUR/JPY, GBP/JPY

Japanese Yen Talking Points:

• The Yen has been snapping back this week after a swell of strength into last week’s close.
• The question now is whether tomorrow’s U.S. CPI release drives larger fears of carry unwind, which could bring more Yen-strength and perhaps even a domino effect into other markets like we saw last summer.
• As looked at over the weekend, the ideal scenario appears to be a ‘goldilocks print’ for CPI, to avoid triggering fears of carry unwind if CPI shows too weak or concern that the Fed won’t be able to cut if too strong.

USD/JPY AD

The Japanese Yen has been vulnerable to some sizable swings on U.S. CPI releases over the past few years.

Reversals in November of 2022 and 2023 both took hold after below-expected CPI data, as did the sell-off last July. And the breakout last year, when the pair finally traded through the 151.95 level that the Bank of Japan had previously defended, that also happened around a U.S. CPI print, albeit a stronger data outlay.

With inflation looking persistent in Japan, and the BoJ having hiked rates for the second time this cycle, the natural question has started to percolate as to whether another carry unwind situation may be in-front of us. And for that, the next pertinent item in the story is unveiled tomorrow with the U.S. CPI release for the month of January.

I looked at this going into the weekend and as I said then, I think the optimal outcome across markets would be a ‘goldilocks print,’ that wasn’t too strong so as to erase expectations for a Fed cut later this year but also not so weak that larger fears of carry unwind in USD/JPY would bubble to the surface.

At this point, USD/JPY is holding a critical spot of support in the 150-151.95 zone. This is the same that held the highs in 2022 and 2023 before the breakout last April, after which it showed as support until the July breakdown. If sellers can take out 150.00, particularly on a weekly close basis, there will be larger fears of carry trades unwinding, and like we saw last summer, that could bring with it de-leveraging fears across other asset classes.

USD/JPY Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Shorter-Term

From the daily chart, last week’s sell-off becomes a bit more notable as price broke through a couple of key levels. The 155-handle had held resistance earlier in the week, and then sellers pushed a breakdown below 153.88, which is now lower-high resistance potential. If bulls can pose a break above that, then the door opens for a 155.00 re-test, and a daily close above that big figure would illustrate a degree of control of near-term trends.

But for sellers, it’s all about the 150.00 level and whether they can start to push below that. If they can, this will take on the look of a scenario vulnerable to larger unwind and as looked at in the past, those unwind scenarios can be violent as its essentially a crowded trade going into reverse.

USD/JPY Daily Chart

EUR/JPY

While there’s questions around U.S. rate cut potential, there’s fewer qualms about weakness in Europe’s economy. When I looked at the Yen last week, I pointed to EUR/JPY as a more attractive candidate for Yen-strength scenarios, highlighting the 160.00 area for resistance potential. 

That price was in-play later that day, and it held as resistance for the following day, with sellers ultimately taking a swing in the final three days of the week, setting fresh four-month lows after this week’s open.

The pair has since bounced and this has the look of profit taking from sellers, but there’s lower-high resistance potential at prior supports, such as 158.66, or the same 160.00 psychological level that was in-play as week ago. Or for those that are very aggressive, the lower trendline in a symmetrical triangle, which has the shape of a bear pennant, is back in the picture currently holding today’s highs.

From a fundamental vantage point if we are seeing Yen-strength themes, or larger themes of carry unwind, EUR/JPY could still be considered as a more attractive venue given that additional Euro-weakness.

EUR/JPY Daily Chart

GBP/JPY

GBP/JPY similarly broke through a big spot of support last week when it took out the 190.00 level, and as I looked at in this weekend’s GBP forecast, that’s now resistance potential for the pair.

From the daily chart, the pair is working on a non-completed morning star formation. Today’s daily candle closing above 189 would be key for that formation to be confirmed and, if it is, that points to bullish potential. The big question after that, of course, is whether buyers would be able to push through the 190.00 handle and the answer to that will likely have at least something to do with tomorrow’s U.S. CPI print.

If we do see larger carry unwind themes, then 185.00 is the next pertinent support in the pair.

GBP/JPY Daily Price Chart

--- written by James Stanley, Senior Strategist