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  • USD/JPY regained positive traction on Wednesday amid renewed USD buying interest.
  • A modest uptick in the US bond yields underpinned the USD and remained supportive.
  • Investors look forward to the release of the US CPI report for a fresh trading impetus.

The USD/JPY pair maintained its bid tone through the early part of the European session and was last seen trading near daily tops, around the 108.70-80 region.

Following the previous day’s pullback from the highest level since June 2020, the pair attracted some dip-buying on Wednesday and was being supported by renewed US dollar buying interest. Investors remain hopeful that the successful COVID-19 vaccine rollouts and massive US fiscal spending will boost the US economic recovery. This, in turn, helped revive the USD demand and assisted the USD/JPY pair to regain traction.

Apart from this, a modest pickup in the US Treasury bond yields provided an additional boost to the greenback and further inspired bullish traders. The upbeat US economic outlook has been fueling speculations for a possible uptick in US inflation. This has further raised doubts that the Fed would retain ultra-low interest rates for a longer period and continued prompting some selling in the US fixed income market.

Hence, Wednesday key focus will remain on the latest US consumer inflation figures, due for release later during the early North American session. The data, along with a critical ten-year bond-auction in the US, will now play a key role in influencing the USD price dynamics ahead of next week’s FOMC monetary policy meeting. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

From a technical perspective, the overnight slide might still be categorised as a corrective pullback. A fresh leg up on Wednesday favours bullish traders and supports prospects for additional gains. That said, overbought RSI (14) on the daily chart warrants some caution before positioning for any further appreciating move.

Technical levels to watch