USD/JPY faces major technical pressure from bearish RSI divergence - In-depth FX analysis

USD/JPY is one of the most reactive pairs to broader geopolitical movements and technical patterns, remaining one of the most favored major currency pairs in FX trading.

But in recent years, it has certainly played tricks on traders. Tending to move lower on rate cuts, the irregular FOMC cycle hasn't seen typical responses in the pair – After all, even the Bank of Japan is going through its own irregular hike cycle to levels not seen in 18 years.

The Yen is also a favored safe-haven currency in periods of turmoil. While the US Dollar also plays a similar role, this time the Japanese currency could not even withstand the pressure: During the US-Iran conflict, Japan spiked to April 2024 highs (~160.47).

Japan is a major importer of energy commodities, with close to 95% of its demand reliant on Middle Eastern exports. Despite having the largest emergency oil reserves among OECD nations, the country still faces immense pressure due to the lack of movement in the infamous Strait of Hormuz.

Due to this elevated dependency, JPY's pre-existing weakness quickly magnified as Japan's main hedgers and importers faced physical barriers to meeting their high demand – having to convert to the US Dollar to purchase Oil commodities, the rise in USD/JPY was nothing short of a self-fulfilling prophecy.

So what about now? With the war priced to come to an end in the next few weeks, narrative once again confirmed by President Trump in his many addresses, the US Dollar is itself finding heavy selling pressure, with the Dollar Index forming a major double top ; The Japanese Yen could be a major gainer from such a pattern.

Despite Japan’s core inflation slightly easing, price pressures from war put the BoJ on the center stage for an imminent hike. The issue is that things won't be so easy.

With recent Bank of Japan uncertainty, including two key BoJ members concluding their terms in coming months, the Yen's safety could face further volatility amid a lack of further tightening.

Keep a close eye on Bank of Japan communications to spot if a decisive rate hike could occur at the next meeting.

The Rate decision will take place on April 28th and is currently priced for about 60% of a hike to 1%.

Let's dive right into a multi-timeframe analysis for the Gopher – more commonly named, USD/JPY.

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USD/JPY recently bounced to April 2024 highs during a mid-March Crude Oil spike, but has failed to hold its prior highs.

Now tumbling right below its 20-Day Moving Average (158.90), the currency pair has formed a failed-breakout; Accompanied by two daily bearish divergences of different magnitudes, its outlook is not turning bearish on the short-term.

To confirm, bears will want to see a break below 157.553, recent pullback lows.

Let's take a closer look.

USD/JPY has entered a corrective phase after the initial Monday spike, now evolving in a short-term bear channel after breakout out of its higher timeframe Bull trend.

Any test of its 4H 20 and 50-MA could provide interesting points for entries on pullbacks if prices get there (159.24).

Resistance levels

• 4H 50-period MA 159.240
• 158.50 to 159.50 2026 Major Resistance
• April 2024 160.00 to 160.40 Major Resistance
• June Mini resistance 160.70 to 161.00

Support levels

• December highs Major Pivot 157.40 to 157.85
• 156.485 4H 200-period MA (bearish below)
• 156.00 Pivotal Support
• 155.00 Mini-Support

USD/JPY has attacked its pullback higher, shortly testing the upper bound of its intraday downward channel.

159.00 is a key area of pressure, hence any rejection in the US Dollar could be reflected in an inability to continue higher – In such occasions, two different trades are possible

• Sell on limit at the 200-Hour MA (~159.24)
• Sell stop below 158.60 on small size, with further continuation needed to confirm the trade
  • Any break above 159.60 and daily close above would invalidate the reversal patterns.

Safe Trades!

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