The USD/JPY pair refreshed monthly top during the mid-European session, albeit struggled to capitalize on the move beyond the 115.00 mark and quickly retreated a few pips thereafter.
Following the previous day's subdued/range-bound price action, the USD/JPY pair attracted fresh buying on Wednesday and prolonged its recent upward trajectory witnessed since the beginning of this month. Despite the continuous surge in new COVID-19 cases, signs that the Omicron variant might be less severe than feared remained supportive of the underlying bullish sentiment. This was evident from a generally positive tone around the equity markets, which undermined the safe-haven Japanese yen and acted as a tailwind for the major.
The risk-on flow, along with the Fed's hawkish outlook pushed the US Treasury bond yields higher, which acted as a tailwind for the US dollar and provided an additional boost to the USD/JPY pair. Bulls, however, struggled to find acceptance or build on the momentum beyond the key 115.00 psychological mark. A resistance marked by the top boundary of an upward sloping channel extending from monthly swing low capped the upside amid thin year-end trading volumes, warranting some caution before positioning for further gains.
Market participants now look forward to the US economic docket, featuring the second-tier releases of the November Goods Trade Balance, Wholesale Inventories and Pending Home Sales. The data might do little to provide any meaningful impetus. Hence, traders will take cues from the US bond yields, which will influence the USD price dynamics. Apart from this, the broader market risk sentiment will drive demand for the safe-haven JPY and produce some short-term trading opportunities around the USD/JPY pair.
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