EUR/USD Struggles at 1.16 While USD/JPY Approaches Critical 160 Level

What to Know

• EUR/USD is struggling to break above the 1.16 resistance level, a key ceiling that has limited gains multiple times in recent months.
• A rejection at this level could send the pair back toward the 1.15 support zone in the near term.
• USD/JPY is approaching the psychologically important 160 level, which Japanese officials have historically defended verbally.
• A breakout above 160.40 could trigger a much larger long-term move higher for the pair.
• Diverging monetary policies between the Federal Reserve and the Bank of Japan continue to support a stronger U.S. dollar.

The backdrop for these currencies have some similarities, yet some differences in the sense that the US dollar has been strong for a while as rates continue to rise in America. That of course puts pressure on other currencies as the safe haven bid now also pays you to hold it.

With that being the case, we have to keep in mind that the markets are moving on the latest whisper of something coming out of the war that would either be positive or negative and therefore volatility remains a feature of pretty much all markets I watch.

EUR/USD

In the Euro, we are struggling with the 1.16 level, an area that has been important multiple times and quite frankly, this is a bit of a ceiling in the short term. If the market were to break down from here, and I think it very well could, the Euro probably goes searching for the 1.15 level.

It is not until we break above the 1.1670 level that I think maybe a little bit more is possible. You can make an argument that we are at the bottom of a range for the last 6 or 7 months but quite frankly we would need to see more of a risk appetite increase around the world to really make this thing start to rally.

USD/JPY

The other market that I am watching a lot right now is the Japanese Yen and the US dollar has risen a bit against the Japanese Yen, but when you look at this chart it does not seem too innocuous at first glance. The 160 Yen level is an area that the Japanese have defended verbally at least multiple times, but when you start to really look at the bigger picture going back multiple years, you begin to see that we are at an area that is very important.

In fact, if we break 160.40, I think at that point the Japanese Yen is cooked. I think we are talking about a multi-year move to the upside, possibly 80 handles. That would put you right around 240 Yen, which is where the precipitous fall in 1985 started. That is how serious this level is.

Now having said that, we have a lot of work to do before that happens, but this is one of the most important charts to watch from what I can see. I still prefer to buy dips. The Bank of Japan won’t be able to tighten anytime soon, and the Federal Reserve remains somewhat hawkish as inflation continues to be a major issue. Another side note is Asia gets its oil through the Strait of Hormuz; the United States doesn’t. That makes a big difference.

For more daily forecasts and expert analysis on major forex pairs, including EUR/USD and USD/JPY, visit our Forex Forecasts section and stay ahead of market trends.