USD/JPY rallies to 109.80-85 region amid broad-based USD strength

The USD/JPY pair witnessed an aggressive short-covering move during the early North American session and jumped to the 109.80-85 region in reaction to mostly upbeat US macro data.

The pair attracted some dip-buying near the 109.20 region on Thursday and built on the previous day's modest bounce from near one-month lows amid resurgent US dollar demand. The USD/JPY pair, for now, seems to have stalled this week's softer US CPI-inspired retracement slide and snap two consecutive days of the losing streak.

The USD buying picked up pace after the headline US Retail Sales smashed estimates and increased 0.7% MoM in August. Moreover, sales excluding autos recorded a much stronger growth and came in at 1.8%, underscoring consumer confidence. Adding to this, the Philly Fed Manufacturing Index jumped to 30.7 in September from 19.4 previous.

This, to a larger extent, helped offset a slight disappointment from Weekly Initial Jobless Claims, which rose from a pandemic-era low of 312K to 332K during the week ended September 10. Nevertheless, the data pointed to the continuation of economic recovery and reaffirmed expectations about an imminent Fed taper announcement later this year.

This was reinforced by a sharp spike in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond rallied back to the 1.35% threshold, which further underpinned the greenback. The combination of factors lifted the USD/JPY pair back above the 109.45-50 strong horizontal support breakpoint.

Meanwhile, worries about the Delta variant and a global economic slowdown continued weighing on investors' sentiment. This was evident from a softer tone around the equity markets, which might underpin demand for the safe-haven Japanese yen and keep a lid on any further gains for the USD/JPY pair, at least for now.

Technical levels to watch