USD/JPY sticks to modest intraday gains, just below monthly high set on Wednesday

• USD/JPY regained positive traction on Thursday amid easing Omicron concerns.
• Subdued USD demand, weaker US bond yields kept a lid on any meaningful gains.
• Investors look forward to the US macro data for some short-term trading impetus.

The USD/JPY pair traded with a positive bias through the early European session and was last seen hovering near the daily top, around the 114.20 region.

Following the previous day's pullback from the monthly high, the USD/JPY pair regained positive traction on Thursday and was supported by the underlying positive tone in the markets. Receding fears that the new fast-spreading COVID-19 variant could derail the economic recovery undermined the safe-haven Japanese yen and acted as a tailwind for the major.

Investors turned optimistic after reports indicated that the current vaccines may be more effective than first thought in fighting the Omicron variant. Moreover, news from a South African study suggested reduced risks of hospitalisation and severe disease in people infected with Omicron compared with the Delta strain, which further boosted the risk sentiment.

Meanwhile, the uptick lacked bullish conviction amid subdued US dollar demand and a softer tone surrounding the US Treasury bond yields. This, in turn, warrants caution for bullish traders amid relatively thin liquidity conditions heading into the year-end holiday season. Hence, it will be prudent to wait for a strong follow-through buying before positioning for any further gains.

Market participants now look forward to the US economic docket – highlighting the release of Core PCE Price Index and Durable Goods Orders data. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch