USD/JPY Outlook: US Dollar Stalls at 160 as Nikkei Eyes Gains
By Matt Simpson, Market Analyst
Date: 07/04/2026
Market Overview
The USD/JPY currency pair is currently facing resistance at the key level of 160, showing signs of fatigue and potential bearish divergence. This suggests a possible pullback in the US dollar's strength against the Japanese yen. Concurrently, the Nikkei 225 index is gaining bullish momentum, trading above the 50,000 mark, which may be supported by a strengthening yen.
Technical Analysis of USD/JPY
The recent price action indicates a rejection at the 160 resistance level, with a small shooting star candle forming, which is significant as it confirms the resistance. This setup raises the possibility of a lower high forming, potentially leading to a mean reversion towards the 20-day EMA just below 159. Additionally, bearish divergence on both the 14-period and 2-period RSI indicators suggests that the market may be reaching a top.
Last week’s weekly chart displayed an elongated hanging man candle, indicating a need for caution regarding potential strength in the yen and weakness in the dollar, which could drive USD/JPY lower.
Geopolitical Considerations
Geopolitical risks, particularly concerning the situation in Iran, could introduce volatility and lead to erratic price movements in the near term. Traders are advised to remain vigilant for potential whipsaw action before a definitive trend emerges. However, from a technical standpoint, the analyst's bias leans towards a downward movement for USD/JPY in the short term.
Nikkei 225 Futures Analysis
The Nikkei 225 index is showing a bullish structure, having formed a double bottom above the 50,000 level. Following this, a three-day rally was observed, although resistance was encountered just below 55,000. The pullback has been shallow, indicating a potential bull flag formation. A bullish pinbar on Tuesday suggests strong demand within the current week’s range, indicating a desire for prices to break higher.
For the Nikkei to continue its upward trajectory, a break above the 55,000 resistance level is crucial. The analyst maintains a bullish bias as long as prices remain above the low of 52,230 established on Thursday.