USD/JPY recovers further from one-week low, climbs to 114.70 area amid stronger USD

• USD/JPY gained strong positive traction on Thursday and snapped four days of the losing streak.
• A goodish pickup in the USD demand turned out to be a key factor that pushed the pair higher.
• A softer risk tone could benefit the safe-haven JPY and cap gains ahead of the key central banks.

The USD/JPY pair built on its steady intraday ascent and climbed to a fresh daily high, around the 114.70 region during the first half of the European session.

Following an early dip to the 114.30 area, the USD/JPY pair attracted some buying on Thursday and snapped four successive days of the losing streak to a one-week low. The uptick was sponsored by a goodish pickup in demand for the US dollar, which, for now, seems to have stalled its recent sharp pullback from the 18-month peak touched last week.

Despite less hawkish comments by Fed officials, investors seem convinced that the US central bank will tighten its monetary policy at a faster pace than anticipated to contain stubbornly high inflation. Adding to this, an uptick in the US Treasury bond yields turned out to be a key factor that assisted the greenback to regain some positive traction.

The USD uptick could also be attributed to some repositioning trade ahead of the key central bank event risks – the Bank of England and the European Central Bank meetings on Thursday. That said, diminishing odds for a 50 bps Fed rate hike in March might hold back traders from placing aggressive bullish bets around the greenback.

Apart from this, a softer risk tone around the equity markets, the conflict between Russia and the West over Ukraine should lend some support to the safe-haven Japanese yen. This might further contribute to keeping a lid on any meaningful gains for the USD/JPY pair, warranting some caution before positioning for any further appreciating move.

Market participants now look forward to the US economic docket, highlighting the release of the ISM Services PMI. This, along with the US bond yields, might 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