- A combination of factors triggers some selling around USD / JPY on Wednesday.
- A cautious mood benefits the safe-haven JPY amid subdued action around the USD.
- The decline appears supported, while the focus remains on the FOMC’s monetary policy decision.
The pair USD/JPY has broken its consolidation range and has fallen below the key psychological level of 110.00 during the European session on Wednesday.
After having halted its recent positive move near the resistance of a downtrend line, the USD / JPY has moved lower on Wednesday and has drifted away from highs of more than a week touched in the day before. The drop is due to a combination of factors, although downward movement appears limited ahead of the long-awaited FOMC monetary policy decision.
Investors have become cautious heading into the key event, which is evident from a softer tone around the stock markets. This, in turn, has benefited the Japanese yen as a safe haven and put some pressure on the USD / JPY pair. The bears have further taken the cues from a pullback in US Treasury yields, which has kept the US dollar on the defensive.
Having said that, expectations of a less pessimistic Fed could help put a possible bottom under the USD and offer some support to the USD / JPY pair. Investors may have started pricing out prospects for a stimulus withdrawal earlier than expected amid concerns about rising inflationary pressure, further fueled by the hotter-than-expected US producer price index on Tuesday.
Therefore, market participants will look for clues to a possible change in the outlook for monetary policy and whether members have started the discussion to reduce the current $ 120 billion in monthly bond purchases. This will play a key role in influencing short-term USD price dynamics and helping investors determine the next directional move for the USD / JPY pair.
Meanwhile, broader market risk sentiment, coupled with US bond yields, could provide some momentum and allow investors to seize some short-term opportunities around USD / JPY.
USD / JPY technical levels
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