USD/JPY stays firmer past 114.00 on strong US dollar

• USD/JPY refreshes intraday high, extends bounce off monthly low.
• DXY rallied the most in two weeks the previous day amid firmer yields, weekend positioning.
• Japan’s Machinery Orders rallied in November, virus woes worsen.
• US banks are off today, risk catalysts are the key for fresh impulse.

USD/JPY takes the bids to refresh intraday high around 114.40, up 0.16% intraday, as the US dollar stays on the front foot during Monday’s Asian session.

The greenback benefited from strong Treasury yields and weekend positioning the previous day to mark the heaviest daily run-up in a fortnight. That said, the risk barometer pair’s latest strength could be linked to the firmer data from Japan despite growing fears of the coronavirus. It’s worth noting that the US banks are off due to Martin L. King's Birthday, which in turn limits US bond trading for the day.

In contrast to the recently easing covid numbers in the West, virus figures do escalate in the Asian major of late. “Japan's confirmed daily coronavirus cases on Sunday topped 20,000 for the third consecutive day, as the country continues to battle with the rapid spread of the Omicron variant,” said the Kyodo News. Earlier in the day, Fuji news raised concerns over tighter coronavirus measures are being considered for Tokyo.

Further, Japan’s Machinery Orders rallied past 6.1% YoY forecasts to 11.6% in November, versus 2.9% prior.

It’s worth noting that the hawkish Fed collided with downbeat US data to propel the US Dollar Index (DXY) on Friday. Federal Reserve Bank of San Francisco President Mary Daly said that the latest Omicron wave will extend the period that inflation will remain high. Fed’s Daly also signaled that officials are “going to have to adjust policy”. On the same line, Federal Reserve Bank of New York President John Williams said Fed is approaching a decision to begin raising interest rates.

On the other hand, US Retail Sales for December printed -1.9% MoM figure versus 0.0% expected and +0.2% prior. Further, the Michigan Consumer Sentiment Index for January also eased to 68.8 versus 70 forecasts and 70.6 previous readouts. The details also suggest that the highest inflation in 40 years weighs on consumer behavior.

Amid these plays, S&P 500 Futures remain directionless around 4,655 whereas the Nikkei 225 rises 1.0% intraday by the press time. The US 10-yields rose 8.4 basis points (bps) to snap a four-day downtrend while closing at 1.793% on Friday.

Moving on, chatters surrounding the virus may entertain USD/JPY traders as the Fed policymakers have already sneaked into the blackout period whereas the US bank holiday and a light calendar add to the trading filters.

Technical analysis

Unless rising back beyond the previous support line from late September, around 114.65 by the press time, USD/JPY prices remain vulnerable to revisit the late 2021 lows surrounding 113.15.