USD/JPY steady in tight range above 112 ahead of FOMC

• USD/JPY remains in consolidation phase above 112.
• ISM Manufacturing PMI is coming up next from the U.S.
• The FOMC is scheduled to release December meeting minutes.

After closing the previous day with a 50-pip loss, the USD/JPY pair is having a difficult time finding direction on Wednesday as investors remain on the sidelines before the FOMC releases the December meeting minutes later in the NA session. As of writing, the pair was trading virtually unchanged on the day at 112.25.

Meanwhile, the US Dollar Index, which dropped to its lowest level in more than three months at 91.47, is staging a modest recovery on Wednesday. However, with no fundamental drivers fueling the DXY's rise, today's retracement seems technical in nature. Ahead of the FOMC, markets will be watching the ISM Manufacturing PMI data from the United States. Yesterday, the Markit PMI data released by Markit showed that the business activity in the sector expanded at its fastest pace in more than two years. An upbeat reading could push the DXY up toward the 92 handle. At the moment, the index is up 0.2% at 91.75.

“The FOMC minutes from the December 13 meeting will be released late in the session.  The minutes will be scrutinized for policy clues, but little will likely be found.  A day after that FOMC meeting, the market had priced in about a 63% chance of a March hike.  Now it is closer to 75%,” BBH analysts argued in a recent report.

On the other hand, if the geopolitical tensions surrounding North Korea escalates later in the day, the JPY could show resilience against the greenback as a traditional safe-haven.

Technical outlook

The pair seems to be fluctuating between the 100 and the 200 DMAs and only a decisive break out of this channel could help the pair determine its next short-term direction. The first technical support aligns at 111.75 (200-DMA) ahead of 110.85 (Nov. 27 low) and 110 (psychological level). On the upside, resistances could be seen at 112.50 (100-DMA), 113 (psychological level/20-DMA) and 113.65 (Dec. 21 high).