USD/JPY Pullback as Intervention Risks Return

The US dollar may have reached a near-term peak as markets react to headlines suggesting a possible multinational plan to escort ships through the Strait of Hormuz. Reports indicate the US has been discussing security cooperation with several countries to help protect vessels in the area. Even though no formal agreement has been made, the possibility of improved security for energy shipments has helped lift market sentiment, easing some of the recent strength in the dollar.

USD/JPY has pulled back as traders unwind crowded dollar positions following a strong two-week rally. Comments from Japan’s finance minister warning of possible action to stabilise the currency have also revived concerns about intervention, adding pressure to USD/JPY.

Despite the improved sentiment, oil markets are not fully confirming the narrative. Crude has come off its earlier highs but remains flat for the session, suggesting the geopolitical risk premium tied to Middle East tensions is still present, and the market remains uncertain about whether the situation will truly stabilise.

Technically, USD/JPY still holds a bullish structure with rising 50 and 200-day moving averages and positive momentum indicators. However, markets are currently being driven more by headlines than technical signals. There's a three white soldiers pattern on the weekly chart, which is a very bullish pattern. But this comes near the 160 level, which is where the BOJ intervention risks are highest. For this pattern to validate, the price has to make a new all-time high. The key level to watch is 159.45, the January high. A move back above this level would reinforce the broader uptrend, while failure to reclaim it could expose downside levels around 157.88, 156.53 and the 50-day moving average.

USD/JPY Daily Chart