USD/JPY reverses Tuesday’s gains, drops to 113.00 handle ahead of Fed minutes

The greenback erased previous session gains against its Japanese counterpart, with the USD/JPY pair flirting with session lows near 113.00 region.

Following yesterday's strong up-move, for the second straight session, the pair remained under selling pressure on Wednesday and accelerated the slide during mid-European session in wake of a sharp retracement in the US treasury bond yields. 

With major European equity indices erasing all of their early gains, sliding bond yields points to investors' anxiety ahead of the key event risk - the FOMC meeting minutes, due later during NY trading session. Traders preferred to trim their bullish US Dollar bets in anticipation of less hawkish minutes, which might push back expectations for an eventual Fed rate-hike action.

The minutes from the latest Fed monetary policy meeting would provide fresh insights over the central bank's monetary policy outlook. The minutes would also be looked upon for possibilities of a rate-hike action at the Fed's upcoming meeting in March and eventually provide fresh impetus for the pair's next leg of directional move.

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet notes, "upside break from falling wedge pattern on Feb 13 followed by a re-test of and rebound from the support offered by upper end of the wedge (or descending trend line) suggests the spot could be heading higher to 50-DMA level of 114.87. A daily close above 100-DMA would add credence to the bullish Wedge breakout and the rising bottom formation and open doors for the re-test of 118.66 levels."

He further writes, "on the downside, only a breakdown of the support offered by the rising trend line at 113.00 would signal bullish invalidation."