USD / JPY comfortably holds above the 109.00 level as focus remains on the Fed

• E USD / JPY regains positive traction on Wednesday and slowly retreats near multi-month highs.
• The optimistic US economic outlook supports the USD and lends some support to the USD / JPY pair.
• The cautious sentiment benefits the safe haven JPY and could limit the pair’s rally ahead of the FOMC.

The pair USD/JPY moves with a slight positive bias at the start of the European session on Wednesday, remaining comfortably above the 109.00 level. At the time of writing, the pair remains close to the daily highs around the 109.15 region.

Following the modest pullback the day before, the pair has managed to regain some positive traction and is now approaching the multi-month highs set earlier this week again. The optimistic US economic outlook has continued to support the US dollar, which in turn has been considered a key factor to offer some support to the USD / JPY pair.

Investors remain optimistic that approval of the massive $ 1.9 trillion stimulus package would play a key role in spurring economic growth in the US. Even Tuesday’s disappointing release of monthly retail sales figures did little to lower market expectations for a relatively faster US economic recovery from the pandemic.

Meanwhile, reflation trading has forced investors to start pricing a spike in US inflation and has raised doubts that the Fed would keep interest rates ultra-low for a longer period. This, coupled with increased government indebtedness, has brought the 10-year benchmark US bond yield back above 1.60%, further benefiting the US dollar.

Having said that, Speculation that the Fed could take some action to curb any further increases in the cost of long-term borrowing have acted as a stumbling block. for US bond yields. This appears to be the only factor preventing the bulls from opening aggressive positions and could limit any further rally for the USD / JPY before the FOMC’s monetary policy decision.

Before the key event, investors can refrain from opening aggressive positions. Apart of this, the prevailing feeling of cautionAmid concerns about the temporary suspension of the Oxford / AstraZeneca coronavirus vaccine in Europe, it could offer some support to the Japanese yen as a safe haven and help limit gains for the USD / JPY pair.

USD / JPY technical levels