USD/JPY retreats towards 114.00 as yields consolidate Fed-led moves ahead of ECB

• USD/JPY struggles around monthly top during four-day uptrend.
• Yields underpin DXY, market sentiment dwindles even as Fed matched hawkish forecasts.
• Omicron, stimulus and geopolitics test the bulls amid pre-ECB caution.
• Second-tier data, preliminary PMIs for December also heavy the watcher’s list.

USD/JPY pares intraday gains to 114.10, up 0.07% on a day, during a four-day uptrend to Thursday’s Asian session.

In doing so, the yen pair portrays the market’s cautious sentiment ahead of the key central bank meetings, following the US Federal Reserve’s (Fed) hawkish performance.

That said, softer-than-previous readings of Japan’s preliminary PMI data for December and the hopes of tighter monetary policy from the Fed, as well as the ECB’s refrain to sound hawkish, put a floor under the USD/JPY prices of late.

That said, Japan’s Markit/Jibun Bank Manufacturing PMI eased from 54.5 to 54.2 whereas its Services counterpart dropped below 53.0 to 51.1.

Elsewhere, chatters surrounding the US Build Back Better (BBB) plan and hopes of Sino-American tussles, recently over Uyghur Bill and Beijing’s rush to control data, seems to test the USD/JPY buyers.

It should be noted, however, that the US Treasury yields print a three-day uptrend and joins the firmer S&P 500 Futures to keep USD/JPY buyers hopeful with eyes on the European Central Bank (ECB) and the Bank of England (BOE).

Although both the central banks are likely to portray a hawkish mood, Omicron fears may push back the ECB and can help the US dollar to track the firmer yields, favoring the USD/JPY buyers. On the contrary, any surprises will have an additional reason for the greenback to ease.

Other than the central banks, US PMIs, weekly jobless claims and housing market data will also decorate the calendar.

Technical analysis

A clear upside break of a 13-day-old horizontal hurdle near 113.95, not to forget the 20-DMA level surrounding 113.80, directs USD/JPY buyers towards multiple levels marked since mid-October around 114.50.