- A combination of factors triggered a modest USD/JPY pullback on Wednesday from a multi-year high.
- The JPY benefitted from reviving safe-haven demand; retreating US bond yields weighed on the USD.
- Surprisingly stronger ADP report, hawkish Fed expectations limited losses for the USD and the major.
The USD/JPY pair maintained its offered tone through the early North American session, albeit managing to rebound a few pips from the daily low. The pair was last seen trading just below the 116.00 mark and had a rather muted reaction to upbeat US macro data.
The Automatic Data Processing (ADP) reported that the US private-sector employers added 807K jobs in December as compared to consensus estimates pointing to a reading of 400K. The previous month’s reading, however, was revised lower to 505K from 534K and did little to provide any meaningful lift to the US dollar, which was weighed down by retreating US Treasury bond yields.
Apart from this, the cautious mood around the equity markets underpinned the safe-haven Japanese yen and was seen as another factor that exerted some downward pressure on the USD/JPY pair. Losses were limited, however, by continued expectations for a faster policy tightening by the Fed which acted as a tailwind for the buck.
Money markets have fully priced in an eventual Fed lift-off by May and two more rate hikes by the end of 2022 but the FOMC monetary policy meeting minutes, due later during the US session, may finesse this outlook. This could be making traders cautious before confirming that the recent USD/JPY runup to a five-year high has run out of steam.
From a technical perspective, the overnight sharp move up validated a near-term bullish breakout through a one-month-old ascending trend-channel which had been providing resistance to gains. Given the constructive setup, the ongoing downtick might still be categorized as a corrective pullback and might still be seen as a buying opportunity, especially near the previous swing high, around the 115.50 region.