USD/JPY holding steady above 112.00 handle, FOMC awaited

Despite of yesterday's retracement from six-week tops, the USD/JPY pair managed to defend the 112.00 handle and is now trading with mild positive bias for the sixth consecutive session. 

The pair on Tuesday jumped to its highest level since March 21 but failed to extend the up-move and trimmed some of its strong gains. There was no fundamental trigger to explain the retracement and hence, could be attributed to some profit-taking.

Receding geopolitical tensions continues to dent the Japanese Yen's safe-haven appeal and has been supportive of the pair's strong recovery move over the past three weeks. Meanwhile, with the CBOE Volatility Index (VIX) slumping to a 10-year low, the pair might continue to benefit from the risk-on flow and hence, any immediate downside seems limited.

However, today's FOMC decision remains a key determinant of the pair’s next leg of directional move. The Fed is widely expected to keep rates unchanged but investors would be closely scrutinize the accompanying policy statement for fresh clues over June rate hike move and possibilities of the central bank trimming its balance sheet this year.

   •  FOMC Preview: Expect only limited changes to the statement - GS

Today's US economic docket also features the release of ADP report on private sector employment and the ISM non-manufacturing PMI, which would be looked upon for some trading impetus during early NA session.

   •  Key US data previews: FOMC and ADP employment report - Nomura

Technical levels to watch

A follow through buying interest beyond 112.30 level (yesterday's high), the pair is likely to aim towards testing 112.70-80 hurdle ahead of the 113.00 handle and its next hurdle near 113.30-35 region. On the flip side, retracement 111.80 horizontal level is likely to accelerate the corrective slide towards 111.25 intermediate support before the pair eventually drops back to the 111.00 round figure mark.