USD/JPY stayed muted for a second day, trading near 158.90 in early European hours on Thursday. The pair remained above the nine-day and 50-day Exponential Moving Averages (EMAs).
The 14-day Relative Strength Index (RSI) was 54.5, pointing to neutral-positive conditions. This suggested steady upside momentum while the pair consolidated below recent highs.
Key Technical Inflection Zone
Price action sat just under the top of a descending channel, with the pair near a “make-or-break” area. A sustained move above the channel would confirm a bullish reversal, while rejection could lead to a sideways phase.
If the pair breaks higher, it could target the 22-month high of 160.73 set on 30 April. The next level would be the all-time high of 162.00 from July 2024.
On the downside, first support was at the nine-day EMA of 158.51, then the 50-day EMA at 158.23. A drop below both could pull the pair towards the nearly three-month low of 155.04 from 6 May, and then the channel base near 153.80.
The USD/JPY is in a “make-or-break” zone, and we see this as a key moment for positioning. This technical setup, hovering just below a major resistance, suggests a significant move is brewing in the coming weeks. For derivative traders, this means now is the time to consider strategies that profit from a sharp price change.
Derivative Positioning Considerations
If we anticipate a breakout to the upside, buying call options with strikes around 160.00 or 161.00 for June or July 2026 expiry seems prudent. This view is supported by the recent U.S. Core CPI data for April 2026, which came in at a stubborn 2.9%, pushing back expectations for a Federal Reserve rate cut. This fundamental backdrop strengthens the dollar and supports the case for a rally.
We must remain cautious, as Japanese authorities have a history of intervening to support the yen. We all recall the sharp sell-offs seen during the spring of 2024 when the Ministry of Finance stepped in aggressively as the pair pushed past the 160 mark. This history means any long positions should be managed with care, as the risk of a sudden, sharp reversal remains elevated.
Given the uncertainty of direction, strategies that benefit from a spike in volatility are attractive. One-month implied volatility for USD/JPY has already climbed to 9.5% from around 8.0% last month, indicating the market is pricing in a larger-than-usual move. This makes long straddles or strangles a viable way to trade the breakout without betting on the specific direction.
On the other hand, if the pair fails to break resistance, a move back towards the 50-day EMA at 158.23 is likely. Traders anticipating this rejection could consider buying put options or establishing bear call spreads to profit from a sideways or downward drift. A decisive break below this moving average could accelerate a decline toward the 155.00 level we saw earlier this month.
