USD/JPY bounces off lows, back around mid-113.00s

   •  Traders look past the latest US political development.
   •  Initial signs of inflationary pressure lend support to the USD.
   •  US CPI/FOMC announce to provide a fresh directional impetus.

The USD/JPY pair managed to recover majority of its early lost ground and has rebounded around 30-pips from weekly lows touched earlier today.

The pair extended overnight retracement slide from 4-week tops and dropped to an intraday low level of 113.13 on news of a Democrat candidate's victory in a US Senate race in Alabama. The outcome was seen having potential negative implications for the US President Donald Trump's tax reforms and attracted some selling pressure around the US Dollar. 

Barring the initial reaction, the pair lacked any follow through weakness as the US Dollar remained underpinned by yesterday's stronger-than-expected US PPI print for November, which jumped to the highest level since January 2012. 

Moreover, investors also seemed to refrain from placing/carrying aggressive bets heading into today's big event risk - FOMC decision, and hence, a possible short-covering move could also be one of the factors behind the pair's modest rebound over the past hour or so.

In the meantime, the release of US CPI print, along with the US President Donald Trump’s speech on the tax reform plan could infuse some volatility and help traders grab some short-term trading opportunities.

Technical levels to watch

Sustained strength above mid-113.00s, leading to a subsequent move beyond 113.65-70 area, now seems to pave the way for an extension of the pair's upward trajectory towards reclaiming the 114.00 handle.

On the flip side, 113.20-15 area now seems to have emerged as immediate support, below which the pair is likely to accelerate the slide towards 112.80 horizontal level ahead of the 112.60-55 support.