USD/JPY refreshes daily tops, around 113.20-25 region ahead of US CPI

• USD/JPY staged a solid recovery from near one-month lows touched on Tuesday.
• Rebounding US bond yields helped revive the USD demand and remained supportive.
• The market focus remains glued to the release of the US consumer inflation figures.

The USD/JPY pair maintained its bid tone through the mid-European session and was last seen hovering near daily tops, around the 113.20-25 region.

The pair attracted fresh buying on Wednesday, snapping four days of the losing streak and reversing the previous day's losses to near one-month lows. The US dollar made a solid comeback amid a strong rebound in the US Treasury bond yields. This, in turn, prompted some short-covering around the USD/JPY pair.

Despite the Fed's dovish outlook, the markets have been pricing in the possibility of an interest rate hike in 2022 amid worries about a faster-than-expected rise in inflationary pressures. This was seen as a key factor that triggered a fresh leg up in the US bond yields and helped revive demand for the greenback.

Investors also seemed inclined to unwind their USD bearish bets ahead of Wednesday's release of the latest US consumer inflation figures, which will influence Fed rate hike expectations. Hence, the positive move could further be attributed to some repositioning trade, warranting some caution for aggressive bulls.

The official report is expected to show that the headline CPI remained elevated near multi-decade highs, above the 5.0% YoY rate. A stronger print will reaffirm expectations that the Fed would adopt a more aggressive policy stance to contain stubbornly high inflation and provide a strong boost to the greenback.

This, in turn, will play a key role in determining the next leg of a directional move for the USD/JPY pair. In the meantime, the risk-off impulse in the markets could underpin the safe-haven Japanese yen and keep a lid on any further gains for the major. Hence, any subsequent positive move might confront some resistance near 100-hour SMA, around the 113.35 region.

Technical levels to watch