USD/JPY, GBP/JPY Remain Focused Higher as Resistance Breaks

Japanese Yen Weekly Forecast: Bearish

As expected, the Japanese yen continued to lose against the US dollar and British pound last week. USD/JPY has confirmed that it has broken out of its June peak and has so far extended its gains to new highs for the year. From a fundamental perspective, the rise in long-term Treasury yields suggests that the Federal Reserve may continue to keep rates high for a long time to come.

This has damaged Japan’s currency while the Bank of Japan has remained largely motionless, leaving the exchange rate more susceptible to external developments than to what is happening domestically. With that in mind, what is the technical landscape for USD/JPY and GBP/JPY?

USD/JPY is still facing waning upward momentum, which can be seen by observing the negative RSI divergence on the daily chart. This has carefully weakened the recent topside breakout and has focused on 145.07 as near-term support. Below that is the 20-day moving average (MA). The latter may be maintained as a support and maintain an upward focus.

Otherwise, focus on the 61.8% Fibonacci extension level of 148.27 and last year’s peak to extend the upside from here.

USD/JPY daily chart

Charts created with TradingView

A similar situation continues for GBP/JPY. The exchange rate confirmed that it had broken out of its peak since June, making it possible to touch a new high for the year so far. Unlike USD/JPY, GBP/JPY has been trading near its peak since late 2015.

Key resistance from here remains at the November 2015 high of 188.81. Beyond that are the midpoint and 61.8% Fibonacci extension levels at 190.65 and 194.03 respectively.

In the event of a downturn, the 50-day moving average could remain the primary support and a broader upside focus. But to get there, it must first clear the June high of 184.01.

GBP/JPY daily chart

Charts created with TradingView

— By Daniel Dubrowski, Senior Strategist, DailyFX.com