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  • US Dollar Index stays in the positive territory in early NA session.
  • The FOMC is widely expected to announce a rate hike.
  • Trading action is likely to remain subdued ahead of FOMC.

After recording its highest daily close in more than two months on Tuesday at 112.98, the USD/JPY pair failed to push higher above 113 and retreated to 112.75 during the European trading hours before gaining traction in the last hour. As of writing, the pair was up 0.04% on the day at 113.02.

Despite a lack of fundamental drivers, the greenback started gathering strength in the early NA session as the broad-based selling pressure surrounding European currencies allowed investors to shift their attention to the buck. At the moment, the US Dollar Index is up 0.2% on the day at 94.33. Furthermore, markets could be pricing a hawkish surprise from the FOMC. “We believe that the market is leaning towards a hawkish reaction, owing to recent Fed speeches and elevated positioning in the USD,” TD Securities analysts noted in a recently published report.

Ahead of the FOMC event, the only data featured in the U.S. economic docket will be the new home sales, which is expected to increase by 0.5% in August following July’s contraction of 1.7%.

Technical levels to consider

The pair could encounter the first resistance at 113.15 (Jul. 19 high) ahead of by 113.75 (Dec. 12, 2017, high) and 114.30 (Nov. 7, 2017, high). On the downside, supports align at 112.75 (daily low), 112 (psychological level) and 111.65 (Sep. 17 low). On the daily chart, the RSI indicator stays near the 70 mark, suggesting that the pair is technically overbought and may need to make a downward correction before extending higher.