USD/JPY holds steady near one-week tops, around 114.00 mark

• USD/JPY gained traction for the second successive day amid sustained USD buying.
• The cautious market mood underpinned the safe-haven JPY and capped the upside.

The USD caught some fresh bids during the early part of the European session and pushed the USD/JPY pair back closer to the 114.10-15 area, or one-week tops touched earlier this Thursday.

The pair built on the previous day's hotter-than-expected US CPI-inspired strong rally of around 125 pips from one-month lows and edged higher for the second successive day. The momentum was exclusively sponsored by the prevalent strong bullish sentiment surrounding the US dollar, which remained well supported by prospects for an early policy tightening by the Fed.

The US consumer prices in October rose at the fastest annual pace since 1990 and fueled speculations that the Fed would adopt a more aggressive policy response to contain rising inflationary pressures. In fact, the Fed funds futures market indicate that the first-rate hike could come as soon as July 2022, which continued acting as a tailwind for the greenback.

Meanwhile, the repricing of the likely timing for an eventual Fed rate hike move triggered a massive rally in the US Treasury bond yields on Wednesday. This was seen as another factor that provided an additional boost to the USD/JPY pair. That said, the cautious market mood underpinned the safe-haven Japanese yen and kept a lid on any further gains, at last for now.

Moreover, relatively thin liquidity conditions, on the back of a bank holiday in the US, further held traders from placing aggressive bets. Hence, it will be prudent to wait for a strong follow-through buying beyond the 114.40-50 region before positioning for any further appreciating move amid slightly overbought RSI on intraday charts.

Technical levels to watch