USD/JPY Forms Head & Shoulders Pattern as Oil Collapse Shifts Dynamics

USD/JPY has formed a major head and shoulders pattern on the daily chart, signaling a potential bearish reversal after the pair served as the primary vehicle for US dollar bulls during the ongoing US-Iran conflict that began on February 27. The pair's rally has been closely tied to safe-haven dollar demand driven by war-related geopolitical risk premiums. However, the sharp collapse in crude oil prices following Iran's reopening of the Strait of Hormuz is fundamentally reshaping the macro landscape. Lower oil prices reduce Japan's import bill, providing structural support to the yen, while simultaneously easing global inflation pressures that had supported the Fed's higher-for-longer rate narrative. The head and shoulders neckline represents critical near-term support, and a confirmed break below could trigger an accelerated move lower with measured targets derived from the pattern's height. Traders should note that any reversal in geopolitical de-escalation could invalidate this bearish setup. Volume confirmation on the neckline break will be essential for pattern validation.