• Iran severs all communication with US.
• Breakdown in diplomacy removes near-term de-escalation scenarios.
• USD/JPY is likely to stay bid overall but extremely volatile.

The USD/JPY pair is trading near the 159.95 price region with a strong but volatile tone on Tuesday, as markets react to a sharp escalation in the ongoing conflict between Israel, the United States (US and Iran.

US President Donald Trump intensified his rhetoric via Truth Social, warning of devastating consequences if Iran fails to comply with US demands regarding the Strait of Hormuz.

"A whole civilization will die tonight, never to be brought back again," Trump threatened on his social media channel. "I don't want that to happen, but it probably will."

His messaging hinted at the use of nuclear weapons and reinforced a maximum-pressure stance, with markets interpreting it as a sign that further military escalation is imminent.

At the same time, the situation deteriorated further after Iran closed all diplomatic and indirect communication channels with the US, effectively eliminating near-term prospects for negotiation. This breakdown in communication significantly raises the risk of miscalculation and rapid escalation.

Short-term technical analysis:

On the 4-hour chart, USD/JPY trades at 159.94. The near-term bias is mildly bullish as the pair holds above both the 20-period and 100-period Simple Moving Averages (SMAs), with the shorter average turning higher above the longer one. This alignment reinforces a positive tone while price action grinds just beneath the recent highs. The Relative Strength Index (RSI) around 61 stays above the 50 midline without reaching overbought territory, indicating steady upside momentum rather than stretched conditions.

Immediate resistance stands at 159.95, with a sustained break exposing the 160.03 barrier as the next upside level. On the downside, initial support is seen at 159.71, where prior horizontal support converges near the rising 20-period SMA to form a nearby floor. A deeper pullback would target 159.47, which aligns closer to the underlying 100-period SMA and marks a more important level for preserving the current bullish bias.

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