USD/JPY Price Analysis: Fragile ceasefire fuels volatility as markets read between the lines

• A fragile ceasefire sparke a short-lived risk-on sentiment, weakening the USD/JPY.
• Iran’s demands reduce the chances of a durable agreement, keeping tensions high.
• Israel promises to fight on in Lebanon, reducing chances of lasting peace agreement.

The USD/JPY pair fell near the 158.30 region on Wednesday, even as the United States (US), Iran and Israel had agreed on a two-week ceasefire.

The so-called "agreement" appears highly fragile, containing numerous conditions that have not yet been fulfilled by all parties involved. Ongoing reports of attacks throughout the Middle East emphasize the instability of the situation. Despite the announcement of a ceasefire, Israel has stated that its operations against Hezbollah in Lebanon will continue, reinforcing the notion that a complete de-escalation is still far off.

US President Donald Trump announced the ceasefire via Truth Social, tying it to the reopening of the Strait of Hormuz, a critical Oil chokepoint. However, the Strait remains closed for now. A senior Iranian official suggested it could reopen later this week, potentially ahead of a planned meeting between Washington and Tehran in Islamabad, Pakistan.

Iran is reportedly pushing for conditions that are unlikely to be accepted, continuing its nuclear enrichment program, asserting control and charging fees for passage through the Strait of Hormuz, full sanctions relief, a withdrawal of US forces from the region, and compensation for war-related damages. These demands significantly reduce the probability of a lasting agreement, keeping geopolitical risk elevated.

Short-term technical analysis:

On the four-hour chart, USD/JPY trades at 158.35, retaining a bearish near-term bias as it holds below both the 20-period Simple Moving Average (SMA) at 159.36 and the 100-period SMA at 159.23. The pair has slipped back under intraday resistance at 158.46, while the Relative Strength Index (RSI) at 31.5 hovers just above oversold territory, suggesting downside pressure persists but short-term selling could start to lose momentum.

On the topside, immediate resistance is now located at 158.46, ahead of a wider supply zone defined by the 100-period SMA at 159.23 and the 20-period SMA at 159.36. On the downside, initial support appears at 158.25, with further cushions at 158.05 and then 157.89; a decisive break beneath this band would open the door to a deeper pullback in the coming sessions.

(The technical analysis of this story was written with the help of an AI tool.)