USD/JPY flirting with 115.00 handle as Fed decision looms

The USD/JPY pair was little changed and remained confined within 50-pips narrow trading range around 115.00 mark amid cautious trade ahead of the FOMC interest-rate decision later during the day.

The Fed is widely expected to go ahead and raise the Federal-funds target range by 25 bps points to between 0.5% and 0.75%. However, given prospects of strong US economic growth, led by the US President-elect Donald Trump’s a proposed fiscal stimulus policy, investors look for further clarity over the Fed's aggressiveness to tighten its monetary in 2017 from the accompanying policy statement. 

Some market participants, however, expect that the Fed officials would increase their interest rate projections only once the Trump administration starts implementing new economic policies and boost economic growth. 

Meanwhile, the prevalent cautious sentiment around equity markets is seen lending some support to the Japanese Yen's safe-haven appeal and further contributing to the pair's range-bound price-action ahead of the key event risk.

Next on tap would be US economic docket, featuring the release of monthly retail sales and PPI, and might provide some short-term momentum play for traders. 

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet, notes, "The Dollar-Yen pair could extend gains to 118.00-118.30 levels (falling trend line drawn from Aug 2015 high and November 2015 high) if the Fed dot plot suggests three or more rate hikes in 2017. Note the weekly MACD is showing signs of exhaustion, while the RSI is almost overbought. Thus, fresh offers could come-in around 118.00 handle. Furthermore, weekly 100-MA has topped out and we also see a bearish 50-MA and 200-MA crossover on the weekly chart. Thus, the stage looks set for a corrective pull back if the Fed raises rates by 25 basis points and plays down the urge to hike rates at a faster rate in 2017."

He further writes, "On the downside, weekly 5-MA level (currently seen at 113.47) would act as a strong support, under which a major support is seen directly at 110.00 levels. In the short-run, bullish invalidation is seen only below 110.00 levels."

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