USD/JPY pares intraday gains, retreats below mid-143.00s ahead of US macro data

• USD/JPY catches fresh bids on Thursday and recovers a part of the precious day’s losses.
• A positive risk tone undermines the safe-haven JPY amid the Fed-BoJ policy divergence.
• Elevated US bond yields revive the USD demand and remain supportive of the move up.
• Traders now look forward to important US macro releases for some meaningful impetus.

The USD/JPY pair catches fresh bids on Thursday and reverses a part of the previous day's retracement slide from the vicinity of the 24-year peak. The pair, however, trims a part of its intraday gains and retreats below mid-143.00s during the mid-European session, though is still up nearly 0.20% for the day.

The overnight JPY strength led by intervention fears fizzles out rather quickly amid a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks. In fact, the BoJ has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. Apart from this, a generally positive tone around the equity markets weighs on the safe-haven Japanese yen and acts as a tailwind for the USD/JPY pair.

The US dollar, on the other hand, catches fresh bids and continues to draw support from expectations for a more aggressive policy tightening by the Fed. The markets started pricing in the possibility of a 1% rate hike move at the September FOMC meeting following the release of the stronger US CPI report on Tuesday. This remains supportive of elevated US Treasury bond yields, Which is seen as another factor underpinning the greenback and offering additional support to the USD/JPY pair.

Despite the fact that the fundamental backdrop favours bullish traders, the emergence of some selling at higher levels warrants some caution before positioning for any further appreciating move. Moreover, repeated failures near the 145.00 psychological mark constitute the formation of a bearish double-top chart pattern on short-term charts. Hence, sustained strength beyond the said barrier is needed to confirm the resumption of the recent strong bullish trajectory witnessed since March this year.

Market participants now look forward to the US economic docket, featuring Retail Sales figures, Weekly Initial Jobless Claims, Regional Manufacturing Indices, and Industrial Production data. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities ahead of the Chinese data dump during the Asian session on Friday.

Technical levels to watch