- A goodish pickup in the USD demand provided a modest lift to USD/JPY on Monday.
- The cautious mood could benefit the safe-haven JPY and keep a lid on further gains.
- Retreating US bond yields might also cap the upside amid the year-end thin liquidity.
The USD/JPY pair traded with a mild positive bias through the early European session and was last seen hovering near the monthly top, around mid-114.00s.
The pair managed to attract some buying on the first day of a new trading week and was supported by a goodish pickup in the US dollar demand. The Fed's hawkish outlook, indicating at least three rate hikes next year, turned out to be a key factor that extended some support to the greenback. That said, a combination of factors could hold back bulls from placing aggressive bets and cap the upside for the USD/JPY pair.
Despite reports that the Omicron variant might be less severe than previously feared, investors remain uncertain over the economic impact of the continuous surge in new COVID-19 cases. This, in turn, kept a lid on the recent optimistic move in the markets and should help revive demand for the safe-haven Japanese yen. This, along with retreating US Treasury bond yields, could act as a headwind for the USD and the USD/JPY pair.
Investors might also prefer to wait on the sidelines amid absent relevant market-moving economic releases and the end-of-year thin liquidity conditions. Hence, any subsequent move up is more likely to confront stiff resistance near the 114.80 region. This is closely followed by the key 115.00 psychological mark, which if cleared will be seen as a fresh trigger for bullish traders and pave the way for further gains.
Technical levels to watch
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