Japanese Yen, AUD/JPY, EUR/JPY, JPY Technical Analysis, IGCS – Talking Points:
- Inverse Head and Shoulders bottom hints at further gains for AUD/JPY.
- EUR/JPY’s surge above the 200-week moving average could ignite a more extensive topside push in the coming months.
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The formation of several bullish technical patterns suggests that the haven-associated Japanese Yen is at risk of further losses against the Euro and Australian Dollar in the coming months. Here are the key levels to watch for AUD/JPY and EUR/JPY rates.
AUD/JPY Weekly Chart – Inverse Head and Shoulders Hints at Extended Gains
AUD/JPY weekly chart created using Tradingview
The impulsive surge above the neckline of a 2-year inverse Head and Shoulders pattern suggests that the AUD/JPY exchange rate could be poised to drastically move higher in the coming months.
With the RSI storming to its highest levels since 2017, and the slopes of all 3 exponential moving average – 8, 21 and 34 – markedly steepening, the path of least resistance seems heavily skewed to the topside.
A weekly close above range resistance at 80.30 – 80.70 is required to signal the resumption of the primary uptrend and would probably carve a path for buyers to challenge the 61.8% Fibonacci (84.70). Clearing that paves the way for a test of the 2018 high.
The inverse Head & Shoulders pattern’s implied measured move suggests that prices could climb over 17% from current levels and exceed the psychologically imposing 93.00 mark for the first time since 2015.
However, if resistance at the 2019 high (80.72) successfully neutralizes buying pressure, a short-term pullback towards the sentiment-defining 200-MA (79.03) could be on the cards.
AUD/JPY Daily Chart – 34-EMA Support Holds Firm
AUD/JPY daily chart created using Tradingview
Zooming into the daily chart reinforces the bullish outlook depicted on the weekly timeframe, as AUD/JPY stays constructively positioned above the 34-EMA (79.58) and psychological support at 79.00.
A daily close above the 8-EMA (80.06) would probably ignite a push to retest the monthly high (80.93), with a daily close above bringing the 82.00 mark into the crosshairs.
Alternatively, sliding back below the January 18 low (79.51) could trigger a downside push back towards the monthly low (78.85).
The IG Client Sentiment Report shows 33.40% of traders are net-long with the ratio of traders short to long at 1.99 to 1. The number of traders net-long is 9.14% lower than yesterday and 18.36% lower from last week, while the number of traders net-short is 17.01% higher than yesterday and 17.42% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/JPY-bullish contrarian trading bias.
EUR/JPY Weekly Chart – 200-MA Guiding Price Higher
EUR/JPY weekly chart created using Tradingview
The EUR/JPY exchange rate also appears poised to climb higher in the medium term, as price bursts away from key support at the sentiment-defining 200-MA (125.42).
With both the RSI and MACD indicator tracking firmly above their respective neutral midpoints, a more extensive topside push seems relatively likely.
Gaining a firm foothold above the 2019 high (127.50) is needed to clear a path to challenge the 38.2% Fibonacci (128.52). Hurdling that validates the break of the downtrend extending from the 2008 highs and brings the 2018 high (137.51) into focus.
Conversely, failing to breach psychological resistance at 127.00 could allow sellers to drive price back towards the 200-MA (125.42), with a break below likely opening the door for a more deeper pullback towards confluent support at the trend-defining 50-MA and 38.2% Fibonacci (122.23).
EUR/JPY Daily Chart – Bullish Engulfing Indicative of Swelling Buying Pressure
EUR/JPY daily chart created using Tradingview
The daily timeframe also hints at further upside for EUR/JPY after the formation of a Bullish Engulfing candle above former resistance-turned-support at the October 2020 high (125.08).
However, this recent surge higher may be nothing more than a pullback to validate the downside break of the Ascending Channel that guided the exchange rate higher through December of 2020.
Nevertheless, a daily close back above the 8-day exponential moving average (126.01) would probably open the door for buyers to challenge the April 2019 high (126.79). A convincing push above that likely paves the way for price to probe the yearly high (127.49).
On the contrary, if psychological resistance at 126.00 remains intact, a reversal back towards the January 19 daily open (125.19) may eventuate.
The IG Client Sentiment Report shows 34.34% of traders are net-long with the ratio of traders short to long at 1.91 to 1. The number of traders net-long is 28.49% lower than yesterday and 24.62% lower from last week, while the number of traders net-short is 26.32% higher than yesterday and 21.21% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.
Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.
— Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss
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