The US Dollar (USD) is on a steady rise against the Japanese Yen (JPY), currently trading at 159.02, as fresh US attacks on Iran cast doubt over the peace process. This development has investors cautious, yet hopeful for a potential deal, which keeps the safe-haven USD from soaring too high.
The Bank of Japan (BoJ) has also weighed in, with Deputy Governor Ryozo Himino suggesting the bank should consider the economic fallout from the Middle East conflict when planning future interest rate hikes. This comes as the BoJ kept its monetary policy unchanged in April, with some committee members calling for a hike, boosting hopes for a tightening move at the June meeting.
From a technical perspective, the USD/JPY pair is showing a neutral-to-positive tone. It has regained about two-thirds of the ground lost after an alleged intervention on April 30, with momentum indicators leaning neutral-to-bullish. The Relative Strength Index (RSI) is rising above the 50 level, while the Moving Average Convergence Divergence (MACD) is drawing close to the zero line.
However, the bulls face significant resistance at the May 21 high of 159.35, with the 160.00 level acting as a potential trigger for Tokyo authorities. Beyond this, the April 30 high of 160.73 comes into focus.
On the downside, the pair finds initial support at the 158.65-158.75 area, which held firm last week. A bearish break below this level could see bears target the previous resistance area around 158.00, ahead of the May 14 low of 157.30.
In my opinion, the USD/JPY pair is in a delicate balance, with the potential for a significant move in either direction. The US-Iran tensions and the BoJ's monetary policy decisions are key factors to watch. The market's cautious optimism could be a sign of things to come, but the risk of a sudden shift remains high. Investors should be prepared for volatility as these developments unfold.
