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

US Dollar, Euro and Australian Dollar vs Japanese Yen – Price Action:

• US dollar / Japanese yen It appears overbought, but there is no reversal to the upside.
• Euro / Japanese Yen Holding on to gains after the recent bullish breakout
• Australian dollar / Japanese yen Crowd looks tired.

The Japanese yen found some bids after Japanese wages rose significantly more than expected, reducing the hurdle for the Bank of Japan to adjust its ultra-loose monetary policy.

Japanese workers’ wages rose 2.5% in May versus 1.2% expected, and 1.0% in April, reversing major trade union wage negotiations this spring that led to the biggest wage increase in decades. While many do not expect the Bank of Japan to adjust its policy this year, a few analysts expect adjustments in Yield Curve Control (YCC) policy later this month.

The continued resilience of the global economy and the resulting upward pressure on bond yields could lead to an adjustment in YCC policy. However, a severe tightening in financial conditions could cause stress in the financial system, leading to a credit crunch, leading to an easing of monetary policy instead. The BoJ’s summary of views at its recent June policy meeting quoted a board member as saying that the central bank should discuss amending the YCC to improve market function and mitigate the “high cost.”

USD/JPY 240 minute chart

Chart by Manish Gradi using TradingView; Refer to notes below.

The Bank of Japan left its loose policy settings unchanged earlier this month, particularly the closely watched YCC policy, in an effort to support the nascent economic recovery and sustainably achieve its inflation target. Bank of Japan Governor Kazuo Ueda said the central bank will “patiently” maintain current policy as there is still some way to achieve the 2% inflation target in a stable and sustainable manner.

Meanwhile, the market remains wary of the Japanese authorities’ intervention as USD/JPY touched 145.00 recently, near the level that triggered intervention last year for the first time in over 20 years. Senior Japanese officials said they have not ruled out any options.

USD/JPY daily chart

Chart by Manish Gradi using TradingView

USD/JPY: No sign of a reversal yet

On the technical charts, USD/JPY has moved into a consolidation phase within its broader bullish phase recently, as the color-coded candlestick charts show. There is a very strong convergence support on the 89-period moving average and the lower edge of the Ichimoku Cloud on the 4-hour charts. This cushion is strong as it led to a rebound in USD/JPY last month. Hence, a hold above the support level cannot be ruled out. However, a break below the support could pave the way towards the 200-period moving average on the 4-hour chart, around 141.00.

EUR/JPY monthly chart

Chart by Manish Gradi using TradingView

EUR/JPY: Overbought, but bullish trend remains

EUR/JPY is looking overbought as it is testing resistance at the upper edge of a slightly sloping upward channel from 2013. Some consolidation within the broader uptrend cannot be ruled out. This follows a rally above the vital convergent barrier at 2014 high of 149.75, coinciding with the median line of the pitchfork channel from 2016. A decisive break (two monthly closes) above could open the door towards the 2008 high of 170.00.

Monthly chart of the Australian dollar / Japanese yen

Chart by Manish Gradi using TradingView

AUD/JPY: The rally looks tired at the moment

Negative divergence (flattening of price associated with declining momentum) on the monthly charts indicates that the AUD/JPY rally is losing steam in the near term. There is a chance that the pair will continue to move sideways in the recently created range of 86.00-98.50. Only a break below 86.00 would indicate that the broader bullish pressure has faded.

Note: The above color-coded chart(s) are (are) based on trend/momentum indicators to reduce subjective biases in trend identification. It is an attempt to separate the bullish and bearish phases, and consolidate within a trend-versus-trend reversal. The blue candles represent a bullish stage. Red candles represent a bearish phase. Gray candlesticks act as consolidation phases (during a bullish or bearish phase), but they sometimes tend to form at the end of a trend. Candle colors are not predictive – they only indicate the current trend. In fact, the color of the candle can change in the next bar. False patterns can occur around the 200-period moving average, around support/resistance and/or in a sideways/volatile market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

– Posted by Manish Grady, Strategist for DailyFX.com

Connect with Jaradi and follow her on Twitter: @JaradiManish