USD/JPY refreshes daily top post-US macro data, struggles to capitalize on the move

• USD/JPY hits a fresh daily high in the last hour, albeit lacks bullish conviction.
• The mostly upbeat US macro releases boost the USD and provide a modest lift.
• Bets for smaller Fed rate hikes continue to weigh on the buck and cap the upside.

The USD/JPY pair catches fresh bids during the early North American session and climbs to a fresh daily high, around the 130.30-130.35 region in reaction to the mostly upbeat US macro data. The momentum quickly runs out of steam and drags spot prices back to the 130.00 psychological mark in the last hour.

The intraday US Dollar recovery from the vicinity of an eight-month low picks up pace after the Advance US GDP report showed that the economy expanded by 2.9% annualized pace in the fourth quarter. This was below the 3.2% growth recorded in the previous quarter, though was better than consensus estimates for a reading of 2.6%. Adding to this, the headline Durable Goods Orders smashed expectations and rose 5.6% in December, providing a modest lift to the greenback and pushing the USD/JPY pair higher.

The data, however, did little to push back against market expectations for a less aggressive policy tightening by the Fed. In fact, the markets are still pricing in a smaller 25 bps Fed rate hike move in February, which is evident from a rather muted reaction in the markets. This, in turn, is holding back the USD bulls from placing aggressive bets. Apart from this, fresh speculation that high inflation may invite a more hawkish stance from the Bank of Japan (BoJ) cap gains for the USD/JPY pair.

Even from a technical perspective, spot prices face rejection near a two-week-old descending trend-line resistance. The said barrier is currently pegged ahead of the mid-130.00s and should act as a pivotal point, which if cleared decisively should pace the way for additional gains. Traders, however, might prefer to wait on the sidelines ahead of next week's central bank event risk - the outcome of the highly-anticipated two-day FOMC policy meeting, scheduled to be announced next Wednesday.

Technical levels to watch