USD/JPY ended a seven-day rise and traded near 159.00 during European hours on Wednesday. The pair stayed above the nine- and 50-period Exponential Moving Averages (EMAs) after rebounding from last week’s fall.
The 14-day Relative Strength Index (RSI) was near 55. This points to moderate upward momentum, with the price consolidating just below recent highs.
Daily Chart Channel Signals
On the daily chart, the pair sat slightly below the upper boundary of a descending channel. A sustained break above the channel would support a bullish reversal, while failure to break out could keep the pair moving sideways.
If price moves above the channel, it could test the 22-month high of 160.73 set on 30 April. The next level is the all-time high of 162.00 from July 2024.
If the pair falls, support is seen at the nine-day EMA at 158.43 and then the 50-day EMA at 158.21. A move below both could shift momentum lower towards the 12-week low of 155.04 from 6 May and the channel base near 154.00.
We remember a similar technical setup for USD/JPY back in 2024, which also presented a make-or-break scenario. Now, in May 2026, the pair is again testing a critical resistance level around 175.00 as we weigh conflicting signals from central banks. The Federal Reserve has hinted at a prolonged pause in its tightening cycle, while the Bank of Japan remains cautious about any significant policy shift.
Options Strategies Around Key Resistance
For a bullish outlook, we should consider buying call options if the pair secures a sustained break above 175.50. This strategy allows us to capitalize on a potential move towards the 177.00 highs seen earlier this year, while our risk is limited to the premium paid. Supporting this view, the interest rate differential between US and Japanese 10-year bonds just hit 415 basis points, a level that has historically preceded dollar strength.
On the other hand, if the pair is rejected from this resistance, a move back towards the 50-day moving average at 173.80 is likely. In this case, purchasing put options with a strike price around 173.50 would be a sensible hedge or speculative play on the downside. We must not forget the increased verbal warnings from Japanese officials this month, which mirror the rhetoric we observed in late 2024 just before direct market intervention.
Given the uncertainty and the potential for a sharp move in either direction, implied volatility is increasing. A long straddle strategy, which involves buying both a call and a put option at the same strike price, could be effective for traders expecting a breakout but unsure of the direction. This is especially relevant with the Bank of Japan’s policy decision due next week, which has historically been a major catalyst for volatility in the pair.
