Dollar-Yen Holds Key Support on Geopolitics

Key Moments

Fundamental Drivers

USD/JPY is trading modestly lower around 159.55 during the Asian session on Monday, reflecting a softer U.S. Dollar that nonetheless remains broadly supported by heightened geopolitical risks. The move comes as the Greenback eases slightly but still finds backing from threats by United States President Donald Trump that he will destroy Iranian infrastructure if no agreement is reached.

At the time of writing, the U.S. Dollar Index (DXY) – which measures the currency against a basket of six major peers – is marginally weaker, trading near 100.15.

Over the weekend, U.S. President Trump warned of “hell” for Iran’s power plants and bridges in a post on Truth.Social if Tehran fails to reopen the Strait of Hormuz before the stated deadline of Tuesday, April 7, at 9:00 PM Eastern time.

On the macroeconomic side, market participants are awaiting the release of the U.S. ISM Services PMI for March at 14:00 GMT. Consensus expectations point to a moderation in the Services PMI to 55.0 from 56.1 in February.

At the same time, concerns about a potential escalation of war in the Middle East are supporting demand for traditional safe-haven assets, including the Japanese Yen, which provides a counterbalance to Dollar strength in the USD/JPY pair.

USD/JPY Technical Landscape

USD/JPY is trading slightly lower around 159.55, but the short-term configuration remains constructive. Price action is contained within an ascending channel, consolidating just below the upper boundary and staying comfortably above the 20-day exponential moving average near 158.90. That moving average reinforces the pattern of progressively higher lows, which currently aligns with the channel floor around 158.10.

The 14-day Relative Strength Index has moved into the 40.00-60.00 band, signaling positive but not overstretched momentum. This backdrop is consistent with ongoing upside pressure as long as the channel pattern holds.

On the topside, initial resistance is located at 160.45, the latest swing high, followed by the channel ceiling near 161.00. A decisive break above that upper boundary would pave the way toward higher psychological milestones beyond 162.00.

On the downside, immediate support lies at the 20-day EMA around 158.90, with the channel base near 158.10 marking the critical lower edge of the current uptrend. A daily close beneath 158.10 would undermine the bullish structure and shift focus toward deeper corrective targets in the mid-157.00s.

(The technical analysis of this story was written with the help of an AI tool.)

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.