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• The USD/JPY currency pair retreated below the 157.00 mark at the end of the week.
• Traders dumped the US dollar after soft PCE data was released.
• The Fed's hawkish outlook might limit the pair's downside in the coming days.

The USD/JPY pair pulled back from its highest levels since July, as the currency cross retreated to the 156.50 mark following the release of US Personal Consumption Expenditure (PCE) data. Softer inflation metrics, coupled with insights from the Federal Reserve’s recent interest rate decision, moderated bullish momentum for the US dollar. Meanwhile, the pair’s technical indicators signaled caution despite its overall bullish bias.

The latest PCE data from the Bureau of Labor Statistics (BLS) revealed subdued price pressures in November. Prices for goods rose marginally by less than 0.1%, while service prices increased by 0.2%. Food and energy prices also registered a modest 0.2% increase. Excluding these volatile components, Core PCE rose by 0.1% on a monthly basis and by 2.8% year-over-year, below market expectations.

The Fed’s anticipated 25 basis point rate cut on Wednesday brought the key rate to a range of 4.25%-4.50%, as these levels were last seen in December 2022. While the decision aligned with expectations, Fed Chair Jerome Powell’s reserved commentary on future monetary easing dampened hopes for aggressive rate cuts in the near-term.

Softer inflation data has since provided some reassurance, but uncertainty has also remained in regards to the central bank’s next moves. The next highlight will be December's labor data, which is to be released in early January of next year.

USD/JPY Technical Overview

The USD/JPY pair's retreat to the 156.50 level highlighted the cooling seen in bullish momentum, while key technical indicators signaled mixed conditions. The Relative Strength Index (RSI) was rejected at the overbought threshold of 70, which seemed to indicate potential exhaustion in the uptrend. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram continued to print rising green bars, reflecting persistent bullish momentum.

Immediate support was observed at the 156.00 figure. A break below this level would potentially expose the 155.50 mark as the next key downside level. On the upside, resistance remained at the 157.00 level. A decisive break above this level would be required to retest recent highs. While the pair has remained in a broader uptrend, a period of consolidation may be necessary before the next directional move.

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