The US dollar experienced a slight decline on Tuesday, reflecting some hesitation in the market, which is understandable given the upcoming interest rate decisions from both central banks. USD/JPY has shown some weakness during Tuesday’s trading session, with the pair pulling back from the key 160 level. As both central banks prepare for policy announcements, this retracement appears expected amid rising uncertainty and strong structural resistance.
Risk appetite remains a key driver for USD/JPY, as the Japanese yen typically acts as a safe-haven currency. However, the US dollar continues to dominate as the preferred safe haven in current conditions, despite recent softness. The 158 level is likely to serve as strong support for USD/JPY, potentially triggering a rebound. A breakout above 160 would be significant, opening the door for a much larger upward move. Notably, resistance just above this level traces back to historical highs from 1990, making it a critical zone for traders.
From a technical perspective, USD/JPY has formed a notable W pattern of approximately 800 pips, suggesting a potential move towards the 168 level. A sustained break above the long-term 1990 resistance could extend the rally further, with projections even pointing towards the 250 level based on a multi-decade rounding bottom formation on long-term charts. In the current environment, short-term pullbacks in USD/JPY are viewed as buying opportunities. A confirmed breakout could mark the beginning of a multi-year bullish cycle, supported by a strong interest rate differential favoring the US dollar.