- USD / JPY reversed an intraday slide amid the emergence of new buying around the USD.
- The upbeat ADP report reaffirmed the Fed’s aggressive expectations and revived demand for the USD.
- Cautious mood sustained the JPY and limited gains before the FOMC’s decision.
The pair USD/JPY it gained some positive traction during the early days of the American session and returned closer to the daily highs, around 114.00 in the last hour.
The US dollar drew some buying on the dips on Wednesday and reversed its intraday losses in reaction to upbeat macroeconomic data from the US, which, in turn, acted as a tailwind for the USD / JPY pair. The ADP reported that US private sector employers added 571,000 jobs in October, beating estimates for a reading of 400,000 by a large margin and reaffirming aggressive expectations from the Fed.
Meanwhile, the cautious mood, as shown by a generally weaker tone in equity markets, could benefit the Japanese yen as a safe haven and capitalization gains for the USD / JPY pair. Investors could also refrain from making aggressive bets in the face of risk from the central bank’s key event – the outcome of a critical two-day FOMC monetary policy meeting.
The Fed is scheduled to announce its decision later during the US session and is anticipated to begin reducing its bond purchase program by $ 120 billion a month. Markets also appear to be convinced that the US central bank would be forced to adopt a more aggressive policy response amid fears of a faster-than-expected rise in inflationary pressures.
Therefore, the focus will be on the attached monetary policy statement. Aside from this, Fed Chairman Jerome Powell’s comments at the post-meeting press conference will be scrutinized for clues as to when the Fed is likely to raise interest rates. This, in turn, will influence the USD and provide further directional momentum to the USD / JPY pair.
Therefore, it will be prudent to wait for some subsequent buying before positioning for the resumption of the strong appreciation move from the 109.00 neighborhood touched in September. Meanwhile, repositioning the trade could infuse some volatility in the markets and allow traders to seize short-term opportunities around the USD / JPY pair.
Technical levels
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