USD/JPY consolidates above 109.00 mark, US Retail Sales eyed for fresh impetus

• USD/JPY seems to have entered a bullish consolidation phase near multi-month tops.
• A cautious mood benefitted the safe-haven JPY and capped the upside for the major.
• Upbeat US economic outlook underpinned the greenback and extended some support.

The USD/JPY pair consolidated its recent strong gains to multi-month tops and remained confined in a range, comfortably above the 109.00 mark through the first half of the European session.

Following the recent strong positive move of around 450 pips, investors now seemed to have moved on the sidelines and await fresh catalyst from this week's key central bank events. The Fed will announce its policy decision on Wednesday and the BoJ is scheduled to meet on Friday.

In the meantime, a combination of diverging factors failed to provide any meaningful impetus and led to a subdued/range-bound price action on Tuesday. The prevalent cautious mood extended some support to the Japanese yen and kept a lid on any meaningful upside for the USD/JPY pair.

The suspension of the Oxford/AstraZeneca coronavirus vaccine in several European nations acted as a headwind for perceived riskier assets. Spain, Germany, France and Italy temporarily halted the rollout of the COVID-19 vaccine on the back of reports of possible serious side effects.

On the other hand, the prospects for a relatively faster US economic recovery from the pandemic continued underpinning the US dollar and helped limit the downside for the USD/JPY pair. The upbeat US economic outlook was further bolstered by the passage of a massive stimulus package.

Meanwhile, the reflation trade has been fueling speculation about an uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. Hence, the outcome of a two-day FOMC meeting will help determine the USD/JPY pair's near-term trajectory.

Traders now look forward to the release of the US monthly Retail Sales data. Apart from this, the US bond yields will influence the USD price dynamics. This, along with the broader market risk sentiment, might produce some short-term trading opportunities around the USD/JPY pair.

Technical levels to watch