USD/JPY struggles to recover from 108.50 area despite positive trade headlines

• US Dollar Index stays above 98 handle ahead of FOMC.
• Investors ignore latest headlines surrounding US-China trade talks.  
• Trading action is likely to remain subdued for next few hours.

After losing 40 pips on a daily basis, the USD/JPY pair seems to be having a difficult time staging a meaningful recovery as investors stay on the sidelines ahead of the highly-anticipated FOMC announcements. As of writing, the pair was posting modest daily losses at 108.55.

Following the first day of high-level US-China trade negotiations in China, the editor-in-chief of Chinese and English editions of the Global Times, Hu Xijin, reported that negotiators had an efficient and constructive deep exchange while adding that two sides discussed increasing purchase of US farm products and the US side agreed to create favourable conditions for it. These comments, however, failed to ramp up the risk appetite and allowed the pair to stay in its range. Reflecting the neutral market sentiment, the 10-year US Treasury bond yield is down 0.4% on the day while the S&P 500 Futures is adding 0.15%.

Volatility to pick up in the second half of the day

Later in the day, the ADP’s private-sector employment data will be released. However, markets are likely to stay calm while waiting for the FOMC. At the moment, the US Dollar Index is virtually flat on the day at 98.08.

Previewing these events, “Given crosscurrents persist as a threat for the outlook and inflation remains subdued, we look for the Fed to leave the door open to further easing. We expect the statement to show modest, mark-to-market changes and for two of the FOMC voters to dissent,” said TD Securities analysts.

“Separately, we’ll also have the first look at employment data for July, with the release of the ADP jobs report (mkt: 150k); and further indication of manufacturing activity for July with the Chicago PMI (mkt: 51.0).”

Technical levels to consider