EUR JPY rises to a critical juncture

A sharp pullback for the Japanese yen has occurred this week on a resurgence of support for Japanese Prime Minister Shinzo Abe’s brand of economic stimulus after his party’s landslide political victory this past weekend. This yen pullback has helped lead to a strong rebound for EUR/JPY this week, lifting the currency pair from near its multi-year lows around 111.00 support to hit key resistance around the 116.00 level.

A few weeks ago, this 116.00 level was broken down decisively in the immediate aftermath of June’s Brexit vote, as the euro plunged while safe haven flows boosted the yen. That June plunge was followed by a quick bounce and then a return back down to the 111.00-area support lows before the sharp rebound this week.

Having risen back up to 116.00, EUR/JPY has reached a critical post-Brexit technical juncture. With the previously acute concerns over Brexit consequences having faded substantially in the weeks since the historic EU referendum, both the pound and euro have begun to stabilize, and the safe haven appeal of the yen has declined markedly. With the promised implementation of more Japanese stimulus measures, the yen could continue to retreat, potentially pushing EUR/JPY towards a further recovery.

As noted, the 116.00 level represents a key technical area. Any strong break above this level should further support a EUR/JPY recovery. In this event, the next major upside targets are at the key 119.00 and then 122.00 resistance levels. Any prolonged failure to breakout above 116.00 could invalidate the recovery and lead to further near-term range-trading around the long-term lows.