USD/JPY: steady below 115 ahead of FOMC and other major risks

USD/JPY is consolidated in a tight range on a day where markets are getting set for the FOMC outcomes. The FOMC is expected to hike interest rates in a continuation of the normalisation of monetary policy trying to keep up with inflation while all economic data has been ticking the boxes of late. The yen has been benefitting in a slightly risk-off environment and the pair lost the 115 handle meeting lows of 114.51 in overnight trade. 

Forex today: stocks off a cliff ahead of FOMC

Meanwhile, there are risks in the FOMC alone, there are also the US debt ceiling risks and European election risks on the same day. The Dutch elections will take place with results made clear around Thursday 5-6 am Netherlands time. "Opinion polls show a divided electorate meaning the government is likely to be made up of a coalition of around five parties rather than the current coalition of the two major parties," explained analysts at Westpac. In respect to the US debt ceiling, this could be a scenario that may take some commitment in Washington to see though over the next several weeks but is a risk to all those expecting Trump's fiscal spending plans to sail through. 

Wall Street tanks in tandem with oil prices

In respect to the BoJ, the following day they are expected to leave policy on hold although there is a slight risk for some potential for changes at the BoJ, including a possible shift to a 10Y yield target range from the current 0% level. "The 80trn annual pace of JGB purchases also appears to be up for consideration. Both changes would be JPY-supportive relative to the current stance," argued analysts at Scotiabank. 

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that a spike up to 115.50 on Friday settled a critical resistance, as it would take a break above it to confirm a more sustainable recovery for the following sessions. "In the 4 hours chart, the pair is pretty much neutral, as the price has bounced modestly from the 23.6% retracement of the latest bullish run, around 114.50, whilst technical indicators have gyrated higher, but remain below their mid-lines. A disappointing Fed could see the pair breaking through 114.00, opening doors for a slide down to 112.60."