USD/JPY refreshes daily top post-US macro data, struggles to capitalize on the move

• USD/JPY hits a fresh daily high in the last hour, albeit lacks bullish conviction.
• The mostly upbeat US macro releases boost the USD and provide a modest lift.
• Bets for smaller Fed rate hikes continue to weigh on the buck and cap the upside.

The USD/JPY pair catches fresh bids during the early North American session and climbs to a fresh daily high, around the 130.30-130.35 region in reaction to the mostly upbeat US macro data. The pair is penetrating a long-term falling channel line, threatening an upside breakout, however, momentum has quickly run out of steam and is dragging spot prices back to the 130.00 psychological mark in the last hour. 

The intraday US Dollar recovery from the vicinity of an eight-month low picks up pace after the Advance US GDP report showed that the economy expanded by 2.9% annualized pace in the fourth quarter. This was below the 3.2% growth recorded in the previous quarter, though it was better than consensus estimates for a reading of 2.6%. Adding to this, the headline Durable Goods Orders smashed expectations and rose 5.6% in December, providing a modest lift to the Greenback and pushing the USD/JPY pair higher.

The data, however, did little to push back against market expectations for a less aggressive policy tightening by the Fed. In fact, the markets are still pricing in a smaller 25 bps Fed rate hike move in February, which is evident from a rather muted reaction in the markets. This, in turn, is holding back the USD bulls from placing aggressive bets. Apart from this, fresh speculation that high inflation may invite a more hawkish stance from the Bank of Japan (BoJ) caps gains for the USD/JPY pair.

From a technical perspective, spot prices are attempting to penetrate the upper trendline of a multi-month descending channel that originates all the way back to USD/JPY's peak in October 2022. The said barrier is currently pegged ahead of the mid-130.00s and should act as a pivotal point: if cleared decisively it will open the way for additional gains and question the so-far dominant medium-term downtrend. A decisive break and close above the channel would probably indicate an extension higher to an initial target at, potentially as high as, 134.00 where the 50-day Simple Moving Average is likely to offer stiff resistance. This is likely because according to technical analysts channel breakouts tend to rise the same height as the channel they originated from.

The current lack of follow-through higher, however, is troubling from a bullish perspective, and until we get more validation the bear market bias continues to favor shorting opportunities and if price fails to breakout of the channel it will likely capitulate in another leg lower within the channel, seeking to revisit a target at the 127.40 lows. 

Traders might prefer to wait on the sidelines ahead of next week's central bank event risk as the outcome of the highly-anticipated two-day FOMC policy meeting, scheduled to be announced next Wednesday, may prove to be a make or break moment for USD/JPY.

Technical levels to watch