USD/JPY Support Test 151.95, EUR/JPY Resistance 160.00

USD/JPY, EUR/JPY Talking Points:

• USD/JPY has continued the December recovery theme and is now testing support at a big spot of prior resistance at 151.95.
• EUR/JPY has shown a hold of resistance over the past two days, with yesterday’s test above the 160.00 handle leading to a response from bears and a doji on the daily chart. So far today, it’s been a lower-high with a continued test below the 160.00 handle.

Japanese Yen strength came on quickly in late-November and was especially on display during the week of Thanksgiving. I looked into USD/JPY just ahead of the move and, at the time, there was a bit of deduction as USD had jumped up to a fresh two-year-high on November 22^nd, while USD/JPY held at a lower-high, inside of the 155.00 level.

The lower-highs helped to produce a bearish trendline that made for a descending triangle formation, and the support side of that formation was built around the 61.8% retracement of the same major move that marked the top at the 76.4% retracement. At the time, I still thought EUR/JPY could make for a more favorable pair for Yen-strength scenarios, and I’ll dig deeper into that in a moment. But, in both cases it didn’t take long for bears to pounce.

USD/JPY drove below a number of supports in quick fashion, including the 151.95 level, the 150.77 level and then, eventually, the 150.00 psychological level. But it was below that big figure that selling pressure began to slow and, eventually, started to lead-in to pullback scenarios.

At this point there’s now been more than a week of higher-highs and higher-lows. But, perhaps more pressing is where all that is taking place, as the same 151.95 level is now showing as support, along with the 200-day moving average. This appears to be a clear statement from buyers attempting to take a stand.

USD/JPY Four-Hour Price Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

USD/JPY

So short-term price action is hinting at bullish continuation – does this mean that bears are done? No. Given how quickly that sell-off came on there could still be prospects of more, but at this stage the carry is still tilted to the long side of the pair and there’s very big question marks around how much the Fed can cut next year and whether or not the BoJ will hike, so the fundamental backdrop remains very much ‘up in the air.’

But – the US Dollar remains very near longer-term resistance on its own right, and if the equity rally is to continue through 2025 I’d expect the US Dollar to harbor some form of weakness, as it seems unlikely that both US equities and the US Dollar spike-higher through 2025 trade. And if we are to see the mean-reversion backdrop in the USD or DXY continue, then I’d expect some form of USD/JPY weakness to appear.

On top of that, I think there’s still quite a bit of the long-term carry trade remaining and if we do see further rate compression between the two economies that can be motivation for unwind; although perhaps not to the degree that was seen in July and August.

But nonetheless price is price and at this point its shorter-term higher-highs and higher-lows. The big question now is whether sellers show up to continue with longer-term lower-highs and the prior support zone at 153.41 is of interest for such. Above that we have the 155.00 zone and this was the lower-high on November 22^nd so if bulls can take that out the prior lower-high sequence has been broken.

USD/JPY Daily Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

EUR/JPY

While there’s continued question around the Federal Reserve’s ability to cut rates next year, there seems to be less debate around the European Central Bank.

And I’ve been saying for a month EUR/JPY could make for a more attractive venue for Yen-strength scenarios.

From the daily chart, we can see the bounce from the trendline looked at last week continuing into yesterday’s trade. But sellers responded aggressively, leaving a doji on the daily chart and extended wicks on either side. Another attempt from bulls to take over today has fallen short, as price has set a lower-high with resistance right at the 160.55 Fibonacci level coming inside of yesterday’s swing high.

EUR/JPY Daily Chart

Chart prepared by James Stanley, EUR/JPY on Tradingview

EUR/JPY

From a shorter-term look, it would still be a bit early to say that bears are re-taking control. Today’s low has so far held at the 159.10 Fibonacci level and that’s a higher-low above yesterday’s swing. So collectively, today’s daily candle is showing both lower-high and higher-low, which suggests consolidation more so than anything directional in nature.

That could change, however, and at this point the 160.00 level could play a role in that if it can help to hold yet another lower-high. For support, yesterday’s swing low at 158.65 would be the point that bears would need to take-out to denote a lower-low and below that, it’s the same zone from two weeks ago spanning from 158.04-158.24. That was resistance-turned-support, so if sellers can take that out, the door would open to bigger picture bearish continuation scenarios.

EUR/JPY Four-Hour Chart

Chart prepared by James Stanley, EUR/JPY on Tradingview

--- written by James Stanley, Senior Strategist