Japanese Yen Outlook: EUR/JPY and GBP/JPY Outbid USD/JPY

The Japanese yen began the week with a mixed performance, weakening against the euro, British pound and New Zealand dollar while holding up better against the Australian and Canadian dollars. However, technical setups suggest EUR/JPY and GBP/JPY offer greater bullish potential than the rangebound USD/JPY, although a weekly shooting star on GBP/JPY warrants caution. With no clear divergence between Fed and BOJ policy expectations to drive the US dollar against the yen, traders may find more compelling opportunities in the European crosses.

EUR/JPY and GBP/JPY Show Bullish Potential as USD/JPY Lacks Direction

USD/JPY Lacks Direction as Fed and BOJ Divergence Fades

The most constructive feature for USD/JPY bulls is that prices continue to hold above the 200-day EMA. Beyond that, there is not much more to it. Traders currently lack a clear divergence theme between the Fed and BOJ to drive a sustained breakout, making USD/JPY better suited to shorter intraday timeframes than traders seeking moves in excess of 100 pips.

Source: ICE, TradingView

EUR/JPY Falling Wedge Keeps 181.55 in Sight

I first highlighted the potential falling wedge on EUR/JPY at the end of October, outlining my bias for an upside break – assuming prices could hold above the recent swing lows. After forming a double bottom around 175, momentum did indeed turn higher. A long-legged doji around 178 marked the beginning of a pullback, but Monday’s bullish engulfing candle snapped a two-day correction and suggests the bullish wedge pattern remains in play.

If successful, the falling wedge projects an upside target near its base at 181.55 for EUR/JPY.

Bulls could seek dips within Monday’s range in the hope of improving the potential reward-to-risk ratio for moves towards 178, 179 and 180. However, prices could still retrace towards the November 2025 low around 175.70 without necessarily invalidating the wedge formation.

Source: ICE, TradingView

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GBP/JPY: Pound Bulls Face a Shooting Star Warning

An interesting setup may be emerging on GBP/JPY, though there are some contrasting clues. The daily chart shows the British pound grinding higher against the Japanese yen with a series of higher highs and lows, although the occasional two-day pullback has seen prices slam lower. But given the recent two-day pullback has already been snapped, and Monday’s bullish bar held above the 200-day EMA, perhaps the correction is over.

The part that makes me wary is the shooting star candle on the weekly chart. A break above 214 would ease those concerns and favour bullish continuation on the daily chart. However, a break below 211.20 (near the 20-day EMA and recent swing lows) would strengthen the case for last week’s shooting star being a bearish reversal, invalidate the near-term bullish bias and bring 210 into focus for bears.

Source: ICE, TradingView