USD/JPY on the defensive around 110.00 ahead of US CPI, FOMC

The USD/JPY pair extends its range-play around 110 handle into early Europe, as a typical calm ahead of the FOMC verdict sets into the markets.

USD/JPY capped by 5-DMA at 110.14

The major largely tracks the subdued trading activity seen around the treasury yields and greenback, as markets refrain to place any directional bets ahead of plenty of risk events lined up for release from the US docket.

However, the downside remains cushioned amid expectations of a Fed rate hike later today, alongside some hawkish talks on the balance sheet normalization. A Fed rate hike is widely expected by markets and hence, if the FOMC fails to offer any hawkish signals in its policy statement, we could see a sharp sell-off in the USD. On the other hand, if the Fed signals balance sheet normalization from Sept, while downplaying recent softer macro data, the greenback could rally hard against most of its major peers.

Meanwhile, focus will remain on the US CPI and retail sales data due to be reported in early US, which could outweigh the FOMC decision, as softer CPI figures would weigh down on the longer-duration treasury yields and pour cold water on future Fed rate hike expectations.

USD/JPY Technical levels                 

Omkar Godbole, Analyst at FXStreet offers technical levels for the spot: “The pair looks set to break higher from the falling channel/flagpole pattern. The immediate resistance is seen at 111.59, ahead of 112.60 (weekly 100-MA). A steeper yield curve after US CPI release and Fed rate decision could yield a sustained break above 111.59 levels. On the other hand, a weaker CPI and a dovish Fed hike would open doors for a break below 108.13 (April low).”