USD/JPY struggles near three-week low, around 114.25-20 area post-US data

• USD/JPY witnessed heavy selling for the second straight day amid a broad-based USD weakness.
• Rebounding US bond yields did little to impress the USD bulls or lend any support to the major.
• A positive risk tone might undermine the safe-haven JPY and help limit any further downfall.

The USD/JPY pair continued losing ground through the early North American session and dropped to a fresh three-week low, around the 114.20 region in the last hour.

The latest US CPI report released on Wednesday was not deemed worrying enough to change the Fed's already hawkish outlook and forced investors to unwind their US dollar bullish positions. The USD selling bias remained unabated on Thursday, which, in turn, was seen as a key factor that dragged the USD/JPY pair lower for the second successive day. This also marked the sixth day of a negative move for the USD/JPY pair in the previous seven sessions, summing up to a fall of over 200 pips from a five-year high touched on January 4.

The USD remained depressed and failed to gain any respite from the US macro releases. In fact, the Weekly Initial Jobless Claims unexpectedly rose from 207K previous to 230K during the week ended January 7. Separately, the US Producer Price Index (PPI) came in at a 9.7% YoY rate for December, up from 9.6% in the previous month. This, however, fell short of market expectations pointing to a reading of 9.8% and hence, did little to impress the USD bulls or stall the USD/JPY pair's decline to the lowest level since December 23.

Meanwhile, a generally positive tone around the equity markets could undermine the safe-haven Japanese yen and help limit further losses for the USD/JPY pair, at least for now. Even from a technical perspective, bearish traders might now wait for a sustained break below an upward sloping trend-line,  extending from November swing low, before placing fresh bets. That said, any meaningful recovery attempt is more likely to attract fresh selling at higher levels and runs the risk of fizzling out rather quickly ahead of the 115.00 psychological mark.

Technical levels to watch