USD/JPY: Double Bottom Completed, Shift Towards Stronger Dollar and Weaker Yen

■ If the DXY breaks through the November high of 100.39, the US dollar may strengthen further.  

■ In the short term, USD/JPY has strong support near the neckline of 156 yen. If it breaks through the July 2024 high, it may rise further. 
 
The military conflict between the US, Israel, and Iran is becoming increasingly complex. The International Energy Agency (IEA) approved the emergency release of oil reserves on the 11th, but as long as Iran effectively blocks the Strait of Hormuz, the upward momentum of crude oil prices is unlikely to weaken. Amid growing market concerns about the potential protracted disruption of Middle Eastern oil supplies, WTI crude oil futures prices rose to around $98 per barrel in Asian trading on the 13th, which also supported the strengthening of the US dollar.  
 

   On the other hand, the Takaichi government's fiscal expansion policy, coupled with rising oil prices, has also contributed to the depreciation of the yen. USD/JPY once again approached the year's high of 159.45 yen reached in January during Asian trading on the 13th. In January, Japanese and US authorities implemented a rate check, causing the USD/JPY exchange rate to fall from around 159 yen to around 152 yen quickly. In February, the Liberal Democratic Party's landslide victory in the House of Representatives election led the market to believe that the Takaichi government would prioritize fiscal discipline, causing the USD/JPY to drop from around 157 yen to around 152 yen. Against this backdrop, the dollar index (DXY) reversed its depreciation trend since November of last year, approaching the key psychological level of 100; a break above the November high of 100.39 could lead to further dollar strength. 
 
The market remains wary of potential foreign exchange intervention by Japanese and US authorities, but unless the current dollar strengthening trend reverses, the effect of buying yen may be limited. Therefore, many believe the threshold for actual intervention is high. From a technical analysis perspective, the USD/JPY has formed a double bottom pattern at the January low (152.08 yen) and the February low (152.25 yen). If we consider the downward sloping trendline formed by connecting the January high (159.45 yen) and the February high (157.72 yen) as the neckline, and assume that this neckline was broken on March 2nd, then we can conclude that the double bottom pattern has been completed, and the market will shift towards a stronger dollar and a weaker yen. In the short term, USD/JPY is expected to find support near the neckline (approximately 156.30 yen). If it further breaks through the July 2024 high (161.99 yen), then based on the aforementioned 5.47 yen drop from the February high (157.72 yen) to the same month's low (152.25 yen), the target price above the February high would be 163.19 yen.