USD/JPY to quickly return to growth: Momentum favours the US Dollar
|USD/JPY paused briefly midweek after a series of solid gains, currently trading at 157.59. The Japanese currency remains under pressure from a strengthening US dollar amid concerns that a prolonged conflict in the Middle East could keep energy prices elevated and heighten inflation risks.
The market has also revised its expectations for Federal Reserve rate cuts, shifting the likelihood of a reduction from July to September. Amid escalating geopolitical tensions, the dollar has emerged as a primary safe-haven asset, particularly as the US-Israel military operation against Iran enters its fifth phase.
US President Donald Trump suggested that the strikes could lead to a change of power in Iran. However, any new regime might prove equally problematic, underscoring the uncertainty surrounding the conflict’s outcome.
Japanese Finance Minister Satsuki Katayama reiterated that currency interventions remain a potential tool to support the yen. According to her, authorities are monitoring exchange rate dynamics with heightened urgency and are coordinating their actions with the US.
Technical analysis
On the H4 USD/JPY chart, the market is forming a consolidation range around 157.00, which is currently extending to 157.92. A decline to test the 157.00 level from above is expected today. Following this, a potential growth leg towards 158.06 is likely. Technically, this scenario is supported by the MACD indicator, whose signal line is well above the zero line and pointing firmly downward.
On the H1 chart, USD/JPY is forming a downward wave pattern, targeting the 157.00 level, with a possible extension to 156.66, and further growth towards 158.38 anticipated thereafter. Technically, this scenario is confirmed by the Stochastic oscillator, with its signal line above the 20 level and pointing firmly downward.
Conclusion
USD/JPY’s brief consolidation appears temporary, with the broader trend favouring further upside for the dollar. Geopolitical tensions in the Middle East have reinforced the dollar’s safe-haven status, pushing back expectations for Fed rate cuts and creating a supportive backdrop for the pair. Despite verbal intervention warnings from Japanese officials, the technical outlook suggests USD/JPY is poised to resume its upward trajectory once the current correction runs its course.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.