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   “¢   Retracing US bond yields/subdued USD demand prompts some profit-taking.
   “¢   Cautious mood underpins JPY’s safe-haven status and added to the selling bias.
   “¢   The latest Fed monetary policy update should provide a fresh directional impetus.

The USD/JPY pair held on to its offered tone through the early European session and is currently placed at the lower end of its daily trading range.  

The pair struggled to build on its positive momentum further beyond the 113.00 handle and started correcting after refreshing two-month tops amid a combination of negative forces.  

A modest retracement in the US Treasury bond yields and a subdued US Dollar price action failed to assist the pair to build on its recent upward trajectory and prompted some long-unwinding trade on Wednesday.

Adding to this, the prevalent cautious mood, as depicted by a mildly weaker opening across European equity markets, underpinned the Japanese Yen’s safe-haven appeal and further collaborated to the pair’s weaker tone.

Traders also seemed inclined to take some profits off the table, especially after the recent leg of over 250-pips since the beginning of this month and ahead of the key event risk – the latest FOMC decision.

A 25bps increase in the benchmark interest rates is nearly priced-in the market and hence, clues over the Fed’s near-term monetary outlook will play an important role in determining the pair’s next leg of directional move.  

Technical levels to watch

Any subsequent retracement is likely to find support near the 112.60-55 region, below which the pair seems more likely to head back towards testing the 112.10-112.00 support area.  

On the flip side, the 113.00 handle remains an immediate strong hurdle, which if cleared is likely to lift the pair, even beyond July monthly high level of 113.18, towards retesting YTD tops near the 113.35-40 region.