USD/JPY bulls looking for upside from daily support

• USD/JPY is consolidated within a key support structure.
• The US CPI today and the Fed next week are the key events into the year-end for the pair. 

USD/JPY is flat in Tokyo trading around 113.40 within a range of between 113.33 and 113.49 for the session so far. Markets are consolidating with a defensive bias ahead of a very busy central bank schedule next week and the US Consumer Price Index today. Risk appetite softened in Europe and the US with equities closing lower. There has been a  focus on the spread of the Omicron variant while traders try to second guess the Federal Reserve's next moves.

US bond yields fell overnight following three consecutive positive days. There is room for the 10-year yield to sink further according to the daily chart to between 1.47 and 1.45% and the concerns over the omicron impact on the economy is a driving force. The two-year government bond yields traded at 0.69%, and the 10-year government bond yields dropped from 1.52% to 1.49%.

US CPI eyed as an event risk

Meanwhile, tonight’s US CPI data should provide some guidance on inflation risks. Traders will be on the lookout for how well the Fed is calling it and whether the data aligns with the Fed’s hawkish views on inflation. CPI is expected to show a rise of 0.7% MoM, up 6.8% YoY, with core up 0.5% MoM (4.9% YoY). Analysts at Westpac explained that another substantial lift in consumer prices is anticipated in November as robust demand broadens the scope of inflation beyond the categories first associated with the reopening.

In other data, ''the tightness in the labour market is becoming more evident. Initial claims for the latest week rose 184k, the lowest increase since 6 September 1969, signalling labour hoarding amid strong demand for labour is at play,'' analysts at ANZ Bank noted. ''Available slack in the labour market is low and constrained by high levels of early retirees and ongoing jobs displacement (childcare etc) from the pandemic. Wage pressure look set to intensify further.''

The Fed next week will be the next major event before the holiday season kicks in and investors will want to see the outcome while looking to square the books before Christmas. The Fed could well open the gates to a rate rise as soon as the second quarter if needed which has the potential to underpin the greenback into year-end. 

USD/JPY technical analysis

The daily chart shows that the price is correcting to the support of the W-formation's neckline. This would be expected to hold and lead to a bullish impulse in the coming sessions.