Following up on a previous comment, which may have been overlooked….
The selloff in EUR/JPY and CHF/JPY has intensified since Monday, with both pairs now testing key moving averages. Sustained breaks here would strengthen the case that the cross rates have entered a larger-scale correction after months of relentless gains.
The latest push lower came after the pullback in US yields, triggered by disappointing ADP data overnight that showed private payrolls contracting for a second straight month. Markets took this as another sign of labor market weakness and quickly ramped up bets on Fed easing.
Futures now price in close to a 90% probability of two additional Fed cuts this year. US 10-year yield fell through near-term support at 4.110, suggesting the rebound from 3.992 had already peaked at 4.201, shy of 55 D EMA (now at 4.207).
The bigger moves in yield might only come when nonfarm payrolls are released to validate the bleak picture. Still, yields are likely to stay soft until then.
At the same time, expectations for BoJ tightening are gaining ground. Odds of an October 30 rate hike have risen to around 40%, reflecting growing conviction that policymakers may move sooner than previously expected.
That pivot was the recent hawkish rhetoric from policymakers. In particular, board member Asahi Noguchi, long viewed as a dove, said earlier this week that the need for policy tightening is “increasing more than ever.” His remarks were echoed by the Summary of Opinions from September’s meeting. And the resilient quarterly Tankan survey should have cleared some worries of doves regarding tariff impacts too.
Technically, considering bearish divergence condition in D MACD in EUR/JPY, sustained break of 55 D EMA (now at 172.20) should confirm medium term topping at 175.03, just ahead of 175.41 (2024 high). EUR/JPY should then be in corrective to the five-wave rally from 154.77. Deeper fall should be seen to 169.69 support, or even further to 38.2% retracement of 154.77 to 175.03 at 167.29.
Similarly for CHF/JPY, decisive break of 55 D EMA (now at 184.06) should confirm medium term topping at 187.55, on bearish divergence condition in D MACD. CHF/JPY should then be correcting whole five-wave rally from 165.83, and target 181.45 support, or further to 38.2% retracement of 165.83 to 187.55 at 179.25.
