JAPANESE YEN TECHNICAL FORECAST: MIXED

USD/JPY and EUR/JPY Talking Points:

• USD/JPY Technical Outlook: Neutral.
• EUR/JPY Technical Outlook: Neutral.
• USD/JPY Bearish Trend Intact Below 134.450.
• EUR/JPY Wedge Pattern Holds Key to Next Move. Hammer Candle on the Weekly Hints at Upside Breakout.

JAPANESE YEN OUTLOOK

Japanese Yen entered the new year with optimism following a strong performance over the festive season. This change of fortune for the safe haven currency came amid a shift in policy from the BoJ who widened the yield corridor on government bonds in a first step towards normalizing monetary policy.

The week began in positive fashion with the Yen gaining against the greenback and euro respectively. EURJPY tapped into the September swing low while USDJPY broke below the psychological 130.00 level briefly hitting a 6-mont low. The optimism soon faded, and we have since seen significant gains for both the euro and the greenback despite efforts by the BoJ to keep the Yen supported. What will the new week bring?

Technical Outlook

USD/JPY Weekly Chart

Source: TradingView, prepared by Zain Vawda

From a technical perspective, the weekly chart for USD/JPY is on course to print a bullish engulfing weekly candle close which hints at further upside in the week ahead. Caution remains as recent price action suggests that bulls have failed to sustain any meaningful upside push as market participants seem to be using upside rallies as an opportunity to get shorts in at a better price.

USD/JPY Daily Chart

Source: TradingView, prepared by Zain Vawda

USD/JPY remains bearish on the daily despite the trendline break this week as we are yet to get a daily candle close above the previous swing high at the 134.450 level. Friday’s daily candle looks set to close as a shooting star which is where the mixed signals make next week’s outlook a bit challenging, as it puts the daily and weekly timeframe at odds with one another. A downside push will bring the psychological level around 130.00 into play with a new low likely should we get a candle close below the 130.00 handle.

Alternatively, a break above the 134.450 level opens up the possibility of a move higher to test the 200-day MA which rests around the 136.400 and could provide some resistance.

EUR/JPY Weekly Chart

Source: TradingView, prepared by Zain Vawda

EUR/JPY is rather similar on a weekly timeframe with a bullish hammer candle close eyeing further upside in the week ahead. It remains to be seen whether there is enough momentum to keep the upside move going given the technical roadblocks ahead.

EUR/JPY Daily Chart

Source: TradingView, prepared by Zain Vawda

On the daily timeframe we are trading within a wedge pattern and creating lower highs and lower lows, while resistance is currently being provided by the 200-day MA. Friday’s candle seems to be flirting with the idea of a close above the MA which could add further credence to an upside breakout in the week ahead. EUR/JPY remains bearish below the previous lower high swing around the 142.700 which lines up with the 100-day MA.

An alternative scenario to consider could be a break above the 200-day MA and a retest of the previous lower high swing and 100-day MA. However, without a daily candle close above this level EURJPY remains susceptible to further downside in the week ahead.

As you can see both EURJPY and USDJPY have conflicting messages when looking at the weekly and daily timeframes leading to a neutral bias and wait and see approach with alternative scenarios provided should we see a breakout in either direction as we start the new week.

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— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda