• Wall Street rises modestly, holds near record highs as optimism turns to caution.
  • US data shows annual inflation at 1.4%; activity increased modestly according to Beige Book.
  • USD/JPY remains steady despite moves in US yields.

The USD/JPY rebounded on Wednesday and eased around the 104.00 level. A stronger US dollar across the board boosted the pair. The greenback held onto gains even as US yields tumbled. The 10-year dropped to 1.07%, a one-week low while the pair remained steady. Speculations about the next steps of the Federal Reserve and the stimulus program are affecting the bond market. During the American session, a recovery in Wall Street added support to USD/JPY.

Economic data from the US showed that inflation is not a problem at the moment. The annual rate rose to 1.4%, matching the highest reading since April. The number is below the Fed’s target and below pre-pandemic levels. The core rate was steady at 1.6%. According to the Beige Book, most districts said economic activity increased modestly in December. In Japan, the machinery orders report for November is due and in the US, jobless claims. Chinese trade data is also due during the Asian session.

USD/JPY short-term technical outlook

The USD/JPY is trading around 103.80. It is moving in a modest range between 103.75 and 104.00, after finding support at 103.50. It shows no clear direction. In the 4-hour chart, the pair dropped below the 20-SMA that now offers resistance at 104.00. At the same time, it holds above the 100 and 200 SMAs that are turning north and converge at 103.50. A break under 103.50 should point to more weakness ahead while above 104.00, it could rise further toward weekly highs.

Support levels: 103.50 103.15 102.70

Resistance levels: 104.00 104.40 104.90

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