“¢ Improving risk sentiment weigh on JPY’s safe-haven status and helped regain traction.
“¢ The USD bearish pressure now seems to have eased a bit and remained supportive.
“¢ Traders now eye US economic data for some impetus ahead of the key FOMC decision.
The USD/JPY pair regained some positive traction on Wednesday and built on the overnight bounce from near three-week lows.
The US Dollar extended its recent pullback from YTD tops and lost some additional ground on Tuesday in wake of the recent data, showing steadily slowing US inflation. However, a late rebound in the US equity markets undermined the Japanese Yen’s relative safe-haven status and helped limit deeper losses, at least for the time being.
The spillover effect, as depicted by a positive trading sentiment around equity markets, coupled with easing USD bearish pressure, at least for the time being, turned out to be key factors prompting some short-covering move on Wednesday and ahead of today’s key event risk – the latest FOMC monetary policy update.
The US central bank is expected to maintain its patient stance and leave interest rates unchanged when it announces its latest monetary policy decision later today. This will be followed by the post-meeting press conference, where comments by the Fed Chair Jerome Powell might influence the near-term sentiment surrounding the greenback.
Heading into the FOMC decision, investors will confront the US economic releases – ADP report on the US private sector employment and ISM manufacturing PMI, which might produce some meaningful trading opportunities during the early North-American trading session.
Technical outlook
As Omkar Godbole, FXStreet’s own Analyst and Editor writes, “the relative strength index (RSI) has dipped below 50, bolstering the already bearish setup as represented by the downward sloping 5- and 10-day moving averages (MAs), downside break of the rising trendline. The pair, therefore, looks set to breach the 50-day MA support at 111.34 on daily closing basis and fall to key support at 110.90 (April 11 low).”
“The breakdown, however, may remain elusive if the Fed takes note of the recent improvement in the economic data and the record highs in stocks. That would lift both treasury yields and the US dollar higher. A bullish reversal in USD/JPY, however, would be confirmed if the 10-year treasury yield sees a close above 2.62% (April 17 high),” he added further.
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