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USD/JPY recovers above 111 as markets cheer Fed's Williams' dovish remarks

  • Fed's Williams says further rate hikes are not a commitment of a promise.
  • Market sentiment improves and Wall Street rebounds in the NA session.
  • US Dollar Index clings to gains above mid-96s.

After dipping below the 111 level in the early NA session, the USD/JPY staged a modest recovery and rose to a session high of 111.35 before losing its momentum. As of writing, the pair was trading at 111.10, losing 0.15% on a daily basis.

In an interview with CNBC, New York Fed President said that further rate hikes were not necessarily a commitment and added that the use of "judges" in the FOMC statement hinted that the Fed was more open to adjustments to the policy path. Boosted by these comments, major equity indexes in the U.S., which started the day modestly higher, extended their gains to reflect a positive market reaction. However, concerns over a government shutdown didn't allow for a sustained rally and stocks erased a large part of their daily gains to force the pair to pull away from session highs.

On the other hand, today's data from the U.S. showed that the real GDP in the third quarter expanded by 3.4% in the third estimate, down from 3.5% announced in the previous estimate. Furthermore, the annual core PCE price index, the Fed's favourite gauge of inflation, rose to 1.9% in November to match market expectations. 

With markets getting ready for the Christmas break, the US Dollar Index didn't react to the data and was last seen up 0.27% on the day at 96.65.

Technical levels to consider

The initial resistance for the pair aligns at 111.45 (daily high) ahead of 111.60 (200-DMA) and 112 (psychological level). On the downside, supports are located at 110.80 (Dec. 20 low), 110.45 (Sep. 6 low) and 110 (psychological level).

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