USD/JPY: awaits the FOMC outcome, funda bullish, technicals could be better

• USD/JPY: capped at 106.50 awaiting the FOMC despite higher yields.
• USD/JPY: bearish potential increasing if below 105.90, where next?

USD/JPY is consolidated in Tokyo while markets await the outcome of the FOMC. Currently, USD/JPY is trading at 106.47, down -0.06% on the day, having posted a daily high at 106.56 and low at 106.44.

USD/JPY was better bid yesterday from 105.93 early to 106.30 before steadying and then a further bout of demand took the pair as high as 106.61 in late European trade. In the US session, the range was between 106.34 and 106.54.  The pair ended the day higher by 0.4% with help from US yields.

US yields higher in anticipation of the Fed

FOMC meeting coming up, so what's in store? - Nomura

"The US 10yr treasury yield rose from 2.85% to 2.88%, while 2yr yields rose from 2.31% to 2.33% (a fresh 10-year high). Fed fund futures yields were slightly firmer for distant meetings, continuing to price three more hikes by end-2018 (including tomorrow) but now almost two hikes in 2019. It seems the late money is on a more hawkish Fed outcome," analysts at Westpac explained.

On the fundamental side, the G20 meeting of finance ministers and central bank governors in Buenos Aires finished with a carefully airbrushed communique with familiar language on open trade, analysts at Westpac explained, noting that separate remarks by officials were more candid e.g. US Treasury Secretary Mnuchin saying the US is not afraid of a trade war. 

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that in the meantime, the 4 hours chart shows that the pair is holding a couple of pips above a bearish 100 SMA, while technical indicators turned south within positive territory, leaning the scale toward the downside without confirming it just yet. The bearish potential will increase on renewed selling pressure below the 105.90 level, with scope then to extend its decline to 105.24, February's low.