- A combination of divergent forces failed to lift USD/JPY on Thursday.
- Dashed hopes of Ukraine diplomacy supported the JPY as a safe haven and capped gains.
- The surge in aggressive USD buying extended support and helped limit the decline.
The pair USD/JPY traded between tepid gains/minor losses during the early American session and held steady in the 121.80-121.85 area after the US macro data.
Speculation that the authorities would step in and respond to the recent sharp decline in the Japanese yen, coupled with fading hopes of Ukraine diplomacy, acted as a headwind for the USD/JPY pair. Bearish traders followed further hints of the ongoing slide in US Treasury yields, although resurgent demand for US dollars helped limit the price decline, at least for now.
After the recent drop to a nearly two-week low, the USD made a solid recovery amid acceptance that the Federal Reserve would raise interest rates by 50 bps in the next two meetings to combat high inflation. Market bets were confirmed by the release on Thursday of the US core PCE price index, which accelerated to 5.4% y/y in February from 5.2% reported the previous month.
This, however, was slightly below consensus estimates that point to a 5.5% reading. Additional details revealed that personal spending slowed considerably and rose 0.2% in February, although this was offset by an upward revision of the previous month’s increase from 2.1% to 2.7%. Separately, US weekly initial jobless claims also missed expectations, rising to 202,000 from 188,000.
The mixed economic data did little to impress USD bulls or provide any significant lift to the USD/JPY pair. That said, it will remain prudent to wait for a strong follow-up sell below the weekly low, around the 121.20-121.15 region, before positioning for an extension of this week’s sharp pullback from the highest level since August 2015, around the 125.10 region.
Thursday’s US economic docket also features the Chicago PMI release, although it is likely to go unnoticed as the focus remains glued to developments surrounding the Russia-Ukraine saga. Apart from this, trades will be based on US bond yields, which will influence the USD price dynamics and produce some short-term opportunities around the USD/JPY pair.
Technical levels
Source: Fx Street
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