USD/JPY remains on the defensive below 122.00 mark, moves little post-US macro data

• A combination of diverging forces failed to provide any impetus to USD/JPY on Thursday.
• Fading hopes for diplomacy in Ukraine underpinned the safe-haven JPY and capped gains.
• The emergence of aggressive USD buying extended support and helped limit the downside.

The USD/JPY pair seesawed between tepid gains/minor losses through the early North American session and held steady around the 121.80-121.85 region post-US macro data.

Speculations that authorities would intervene and respond to the recent sharp decline in the Japanese yen, along with fading hopes for diplomacy in Ukraine, acted as a headwind for the USD/JPY pair. Bearish traders further took cues from the ongoing decline in the US Treasury bond yields, though resurgent US dollar demand helped limit the downside for spot prices, at least for the time being.

Following the recent fall to a nearly two-week low, the USD made a solid comeback amid acceptance that the Fed would hike interest rates by 50 bps at the next two meetings to combat high inflation. The market bets were reaffirmed by Thursday's release of the US Core PCE Price Index, which accelerated to a 5.4% YoY rate in February from the 5.2% reported in the previous month.

This, however, was slightly below consensus estimates pointing to a reading of 5.5%. Additional details revealed that Personal Spending decelerated sharply and rose 0.2% in February, though was offset by an upward revision of the previous month's increase from 2.1% to 2.7%. Separately, the US Weekly Initial Jobless Claims also missed expectations and edged higher to 202K from 188K.

The mixed economic data did little to impress the USD bulls or provide any meaningful impetus to the USD/JPY pair. That said, it will still be prudent to wait for strong follow-through selling below the weekly low, around the 121.20-121.15 region, before positioning for an extension of this week's sharp pullback from the highest level since August 2015, around the 125.10 region.

Thursday's US economic docket also features the release of Chicago PMI, though is likely to pass unnoticed as the focus remains glued to developments surrounding the Russia-Ukraine saga. Apart from this, trades will take cues from the US bond yields, which will influence the USD price dynamics and produce some short-term opportunities around the USD/JPY pair.

Technical levels to watch