The return of USD/JPY as a rates play has coincided with a sharp turn in the US rate outlook, with markets moving from pricing cuts to the risk of a hike. With that shift being driven by energy and geopolitical developments, it points to a market regime that remains reactive rather than settled.
The American currency is moving higher as traders focus on Middle East tensions and bet on hawkish Fed.
USD/JPY remains bullish overall, but the 160 level is still a major barrier, with pullbacks likely to find support near 158 and 156 before another breakout attempt.
USD/JPY rebounds as US Dollar strengthens, BoJ hawkishness tempers upside potential
USD/JPY Price Forecast: 20-day EMA acts as key support zone around 157.50
Looking at the 4-hour chart, the pair traded below a bullish trend line with support at 158.85. The pair even dipped below 158.00 and tested the 100 simple moving average (red, 4-hour).
USD/JPY slides back below 158.00 on broad Yen strength
The aftermath of yesterday's FOMC rate decision was a green light for Dollar bulls, as the DXY index continued a rally from support and a falling wedge formation until pushing back into the 100.22 level. But, as I wrote at the time it was USD/JPY that would likely have significant pull on whether the Dollar rally could continue, and at this point, both markets are down on net following a strong and decisive reversal.
The American currency is losing ground as global central banks signal they could raise rates this year.
USD/JPY drops even as Fed holds hawkish tone
Central bank marathon ends with rate decisions from SNB, BoE, and ECB now behind market. Yen emerged as the strongest performer, supported by a hawkish interpretation of BoJ Governor Ueda's post-meeting remarks.
The pair managed to drop and still faces resistances around 160.20 and 161.95, where each resistance could push for a correction towards the 157.25-65 zone. Above 161.95, the market could enter a new uptrend wave with the first target toward 163.80.