USD/JPY Head-and-Shoulders as Oil Falls After Hormuz Reopening

USD/JPY developed a head-and-shoulders pattern on Friday after WTI and Brent crude prices fell following announcements from U.S. and Iranian officials that the Strait of Hormuz would reopen. The price moves came after months of supply restrictions tied to the waterway.

The Strait of Hormuz was closed earlier this year after Iran seized control of the passage, triggering sustained limits on shipments. WTI and Brent more than doubled at their peaks during the disruption and remain about 35% above levels from early February. Jet fuel averages in Asia and Europe rose sharply during the same period, affecting markets that rely on Middle Eastern imports.

Currency traders pushed the dollar higher against the yen while the strait was closed, with USD/JPY used as a proxy for dollar strength amid risk repricing. The yen was also pressured by shifting expectations for Japanese monetary policy after weaker inflation data and mixed comments from policymakers. Japan's large strategic oil reserves offered some supply cushion for the economy but did not stop foreign-exchange moves.

Charts showed a notable reversal in morning trade as oil prices fell. On the daily timeframe USD/JPY tested the range established since March 10 and interacted with the 50-day moving average near 157.60. The daily relative strength index moved into bearish territory. On the four-hour chart buyers briefly defended the March 19 low at 157.533, while momentum indicators weakened and the RSI approached oversold levels.

Technical analysts identified a head-and-shoulders formation. A confirmed measured move from that pattern would target a mini-support near 155.00. Immediate resistance for the pair is between 158.50 and 159.50, with a four-hour 200-period moving average around 158.92 and a broader resistance band near 160.00–160.40. Additional resistance sits around 160.70–161.00. Key downside levels include the March low at 157.533, a December pivot zone near 157.40–157.85, the four-hour 200-period moving average near 156.485, and a pivotal 156.00 level.

Market participants noted an increased correlation between USD/JPY and oil prices during the crisis: earlier crude and refined-fuel spikes coincided with dollar strength, and the reopening of the strait coincided with corrective moves in the currency pair. Traders are monitoring whether the reopening leads to a sustained reduction in the premium on Middle East oil flows and how that may affect oil and FX pricing. Markets priced a near-term easing of geopolitical risk after the reopening and adjusted positions in both commodity and currency markets accordingly.