USD/JPY remains on the defensive near 130.00 after US ADP report, awaiting FOMC

• USD/JPY extended its sideways consolidation price move for the third day in a row on Wednesday.
• The disappointing report from US ADP failed to impress or provide any significant boost to the pair.
• The market’s focus remains firmly tied to the highly anticipated FOMC monetary policy decision.

The pair USD/JPY traded with a slight negative bias during the first American session and was seen hovering around the key psychological level 130.00 after the release of the US ADP report.

Automatic Data Processing (ADP) reported that US private sector employers added 247,000 new jobs in April, falling short of consensus estimates of a 395,000 increase. This, however, was offset by an upward revision to the previous month’s reading to 479,000 from 455,000 and did little to impress traders or provide any significant lift to the USD/JPY pair.

Looking at the bigger picture, spot prices have been trading in a range since the start of this week as investors wait for a new catalyst before positioning themselves for the next leg of a directional move. Therefore, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later in the US session on Wednesday.

The US central bank is widely expected to raise benchmark interest rates by 50 bps and lay out its plans to start whittling down its massive nearly $9 trillion balance sheet. However, the anticipated move is fully priced into the markets, suggesting that investors will be looking for signs to see if the Fed is ready to hike rates further even if the economy weakens.

Aside from this, investors will also examine Fed Chairman Jerome Powell’s comments at the post-meeting press conference for additional clues on the path of policy tightening. This, in turn, will play a key role in influencing the short-term USD price dynamics and help investors determine the short-term trajectory of the USD/JPY pair.

However, the large monetary policy divergence between the Fed and the BoJ favors bullish traders and supports prospects for an extension of the strong USD/JPY uptrend seen over the past two months or so. Wednesday’s economic docket also highlights the release of the ISM Services PMI, although it would not produce any significant trading opportunities.

Technical levels