Here’s a bold statement: the USD/JPY currency pair is flashing a bearish signal at multi-week highs, and it’s not just interest rates driving the move—energy prices are now taking the wheel. But here’s where it gets controversial: can this signal be trusted in a market environment where narratives shift by the hour, and investors seem more eager to embrace good news than confront bad? Let’s dive in.
On Wednesday, despite strong U.S. economic data easing recession fears, a sharp rebound in risk appetite, and further reductions in expectations for Fed rate cuts, USD/JPY defied the odds. Instead of rallying, it delivered a clear bearish reversal signal on the daily chart—a move made even more striking by the fact it occurred after the pair hit fresh multi-week highs. And this is the part most people miss: the lack of further upside in energy prices may have been the catalyst, but is this enough to justify a bearish outlook?
The price action around the 157.88 level—a key swing high from November—has been particularly telling. This level has acted as both resistance and support, including this week when the rally from February lows stalled after failing to break above it. Wednesday’s bearish engulfing pattern is hard to ignore, especially given how previous engulfing patterns have preceded notable downturns. At face value, this suggests growing downside risks, potentially threatening the uptrend since mid-February. But should we take it at face value? Risk appetite is rebounding, energy supply concerns persist (even if prices have stalled), and the U.S. rates outlook remains robust. Personally, I’d wait for follow-through price action to confirm the bearish signal before jumping on the short bandwagon.
Key levels to watch on the downside include 156.83 (the February 25 high), the February 17 uptrend line, the 50-day moving average, and 155.64 support. On the upside, a retest of 157.88 remains possible, with a clean break opening the door to 159.45—the 2026 high. Technical indicators like RSI (14) and MACD are less conclusive: RSI has broken its uptrend and hovers just above 50, while MACD is mildly bullish after crossing into positive territory. This ambiguity further questions the overnight bearish signal.
Here’s the controversial part: energy prices, not interest rates, are now the dominant driver of USD/JPY. Over the past week, the correlation between the pair and energy markets has been strikingly strong, which makes sense given the geopolitical backdrop. But markets are behaving oddly—latching onto any shred of good news (like unverified reports of Iran seeking conflict resolution) while dismissing bad news. As long as this continues, Japan’s status as an energy importer could favor the yen. But if tensions escalate, USD/JPY could surge.
Meanwhile, the latest U.S. economic data has been undeniably strong, from resilient job growth to a surging ISM services index. This has slashed Fed easing bets, with markets now pricing just 40 basis points of cuts this year—the lowest in months. The February nonfarm payrolls report, due later this week, will be the next big test. Will it reinforce the bullish U.S. outlook or introduce new uncertainty?
Thought-provoking question for you: In a market where narratives shift rapidly and investors prioritize good news, how reliable are technical signals like the bearish engulfing pattern? Share your thoughts in the comments—I’d love to hear your take!
