When the Japanese Yen gets to moving in a trend, it can really put in some significant strength or weakness in a very short period of time, and this was on full display after the FOMC rate decision in September.

When the Fed signaled faster potential rate hikes, along with a possible taper announcement at their next meeting in November, rates markets began to respond very quickly. As I had shared in the Japanese Yen Technical Forecast shortly on the heels of that FOMC rate decision, that rates theme could bring back themes around Yen-weakness, very similar to what had showed in Q1 of this year.

I then picked on GBP/JPY for my Top Trade for Q4, looking to harness weakness in the Japanese Yen by meshing it up with the British Pound, a currency backed by a Central Bank that’s expected to raise rates perhaps even faster and sooner than the Fed. This amounted to a run of almost 900 pips in October trade and that market remains in a very bullish state, as I’ll look at below.

But, generally speaking, the Yen seems oversold given how quickly this move had priced-in, and that can create an environment conducive for pullbacks. I had looked into this on Monday, zeroing in on EUR/JPY as a possible pullback candidate and that’s started to show up with the pair off more than 100 pips from yesterday’s high.

But, the question remains – can JPY pose an even deeper pullback? And if so, which markets might be more attractive for that theme and, on the other hand, which markets are more attractive should JPY weakness come rushing back in?

EUR/JPY

This was the pullback candidate that I looked at earlier this week, largely drawn from the deduction that the topside move had lagged behind those seen in GBP/JPY or AUD/JPY.

At this point, the pair has set a fresh lower-low on the four-hour chart with a move below the 14.4% Fibonacci retracement. Lower-high resistance can be sought around that level, which is confluent with yesterday’s swing low and last week’s swing-high.

EUR/JPY FOUR-HOUR PRICE CHART

Chart prepared by James Stanley; EURJPY on Tradingview

GBP/JPY

I remain bullish in GBP/JPY but the problem here appears to be timing. The pair has set a fresh five-year-high at 158.21 and despite two separate tests on Tuesday and Wednesday, was unable to breakthrough. Price action has since retreated to trendline support, and below that is a confluent zone that runs from 156.35-156.58.

If matters really come undone, deeper support with possible invalidation of the bullish trend could be sought out around the 155.00 psychological level, which is about 25 pips above the 38.2% Fibonacci retracement of the recent bullish move.

GBP/JPY FOUR-HOUR PRICE CHART

Chart prepared by James Stanley; GBPJPY on Tradingview

AUD/JPY

AUD/JPY was setting up for a breakout at the 85 psychological level earlier this week, with one major level sitting ahead at 85.81. I talked about this setup in that Monday article and the breakout took hold on Tuesday with prices setting a fresh three-year-high yesterday.

At this point, the daily chart is working on a non-completed bearish engulfing pattern which, if today finishes like this, could point to even deeper retracement potential.

For now, the 85 level looms large again but this time as possible support. With that said, if this level comes into play today, then we’re likely looking at that bearish engulf setup which would not be ideal for setting up long positioning. So this level would need to come into play either Friday or Monday as support in order to avoid the bullish setup in front of the bearish engulfing print.

AUD/JPY DAILY PRICE CHART

Chart prepared by James Stanley; AUDJPY on Tradingview

CAD/JPY

AUD/JPY and CAD/JPY share quite a few similarities at the moment. And if one thinks of themes and drivers, it makes sense: Both AUD and CAD are commodity currencies and commodities have generally been ripping (except for Gold), and when this has been meshed up with the short-Yen theme on the back of the rates premise, this has made for some really strong trends in both markets.

I had looked into CAD/JPY yesterday, trying to plot for some support potential, and the first level of note may be soon coming into play. But, given the way that this has shown, like AUD/JPY above, a warning is in order as price action is working on a non-completed bearish engulfing pattern on the daily chart. If this completes that way, it could be a lousy signal for long positions, and may instead point to the possibility of a deeper pullback. And a level that is very visible for such a scenario is around the 90.00 handle, which has yet to be tested as support in the pair after last week’s breakout.

CAD/JPY DAILY PRICE CHART

Chart prepared by James Stanley; CADJPY on Tradingview