Japanese Yen Price Action Setups: AUD/JPY, USD/JPY and EUR/JPY

Price Action Setups: AUD/JPY, USD/JPY, EUR/JPY

• The yen could receive a bid if high impact growth data heightens uncertainty amid the re-emergence of US banking fears.
• AUD/JPY – a sentiment gauge – has dropped this week looking for the next catalyst
• USD/JPY uptrend fatigues and EUR/JPY bullish continuation unfolds once more
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Potential Yen Bid Ahead of US GDP and Re-emergence of Banking Jitters

Thus far this week, market sentiment has proven to be fickle – oscillating from one day to the next. One gauge of risk sentiment is the Nasdaq 100, which sold-off heavily ahead of Microsoft and Alphabet earnings, only for the futures market to price in a stronger start to trading on Wednesday. Then in early trading on Wednesday, renewed concern around the banking sector emerged as First Republic Bank’s shares took another nosedive on confirmation that the US government isn’t looking to step in and rescue the distressed bank, sending prices lower. Once again, this morning US equity futures point to a stronger open.

But what does all of this have to do with the Japanese yen? In times of global panic, the yen emerges as an attractive safe-haven venue. Not only that, but recent indications from the new Bank of Japan (BoJ) Governor Kazuo Ueda suggests the undercurrent of ultra-loose monetary policy is subsiding. Inflation, while low compared to Western economies, is yet to move decisively back to the 2% target and the effectiveness of ultra-low policy is being questioned by academics and those with close ties to the Bank.

Today we learn how well the US economy performed in the first quarter of the year as the global growth slowdown gains pace. If the US remains on the downward trend, recession fears are likely to be reignited and in the midst of the unresolved issues around First Republic Bank, the yen may stand to gain from all the uncertainty.

AUD/JPY: Market sentiment gauge sounds the alarm

The AUD/JPY pair can be viewed as a sentiment gauge as it rises in periods of economic expansion due to the Aussie dollar’s correlation to risk assets like the S&P 500, and typically declines during economic downturns as investors shift away from risk assets to the safer yen.

The latest selloff can be attributed in part to Q1 inflation data which finally showed some downward momentum on both the headline and core (trimmed mean) variations at a time when the Reserve Bank of Australia is essentially on hold as far as rate hikes are concerned. Nevertheless, the pair remains key when assessing a preference for the yen as global fundamental conditions are expected to worsen in 2023.

Current support appears at 88.10 after the bearish breakdown of the rising wedge formation, accompanied by the recent MACD crossover. The 2023 March low of 86 is the next level of interest to the downside which may require another catalyst to get there. Resistance remains at 90.40.

AUD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

USD/JPY: Broader bullish move shows signs of fatigue

The USD/JPY pair surprisingly continues to trade within the rising channel, printing higher highs and higher lows. However, dollar drivers remain scarce as interest rate expectations have taken another shift lower on yesterday’s banking news and the pair now contends with a significant zone of resistance around 134.50. Downside levels of support include the underside of the rising channel, followed by the 131.35 level – a marker that has proven difficult to break down as prior daily candles reveal the pair retracing back towards 131.35. Once more, keep an eye on a possible MACD crossover in the coming sessions. The March low at 129.60 remains key if we are to see an extended move lower.

USD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

EUR/JPY: Rising rate differentials could result in further upside potential

The euro has enjoyed a phenomenal recovery as governing council members of the European Central Bank (ECB) continue to talk up rate hikes amid sticky core inflation. As a result, the interest rate differential between the two currencies (German 10-year Bund yield – 10-year JGB yield) heads higher once more.

The bullish setup in EUR/USD was set out in a prior analyst pick, with the latest pullback potentially providing opportunities to re-enter the trend. The zone between the 148.40 and 148.15 levels remains of interest. The Fibonacci level of 148.40 corresponds to the height of the major 2020 to 2022 move – resembling a major level of resistance. It must be noted however that the bullish move is very mature meaning bulls may want to look out for another pullback before considering upside continuations. Keep an eye on a possible MACD crossover once again, as prices remain elevated at current levels. Support at 146.70 and 145.80.

EUR/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX