USD/JPY drops to fresh daily low, around mid-129.00s post-US PCE Price Index

• USD/JPY maintains its offered tone and reacts little to the release of the US PC Price Index.
• Bets for smaller rate hikes by the Fed act as a headwind for the USD and exerts pressure.
• Traders, however, prefer to wait on the sidelines ahead of the FOMC meeting next week.

The USD/JPY pair remains depressed through the early North American session and drops to a fresh daily low, around mid-129.00s following the release of the US macro data.

The US Dollar trimmed a part of its modest intraday gains in reaction to the mixed Personal Consumption Expenditures (PCE) figures, which, in turn, exerts some pressure on the USD/JPY pair. The US Bureau of Economic Analysis reported this Friday that the Core PCE Price Index - Fed's preferred inflation gauge - declined to the 4.4% YoY rate in December from 4.7% previous. The monthly print, however, edged up to 0.3% against the 0.2% in November and estimated. Nevertheless, the data cements bets for a smaller 25 bps Fed rate hike in February and acts as a headwind for the greenback.

The Japanese Yen (JPY), on the other hand, draws support from fresh speculation that high inflation may invite a more hawkish stance from the BoJ later this year. This further contributes to the offered tone surrounding the USD/JPY pair. That said, signs of stability in the equity markets undermine the safe-haven JPY and might help limit losses for the major. Traders might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of next week's key central bank event risk - the highly-anticipated FOMC decision on Wednesday.

Even from a technical perspective, the USD/JPY pair has been oscillating between two converging trend-line over the past two weeks or so. This constitutes the formation of a symmetrical triangle and points to a consolidation phase. Hence, it will be prudent to wait for a sustained break below the triangle support, currently around the 128.80-128.75 region, before positioning for an extension of the recent sharp pullback from over a three-decade high.

Technical levels to watch