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1 Nov 2017

USD/JPY eases below 114 as greenback loses traction ahead of FOMC

  • DXY struggles to stretch its daily gains after ISM data.
  • Positive market sentiment keeps the USD/JPY pair in the positive area.
  • FOMC is expected to hold the monetary policy unchanged.

After advancing to a fresh five-day high at 114.27 in the early NA session, the USD/JPY pair started to retrace its gains as the US Dollar Index failed to sustain its bullish momentum. As of writing, the pair was trading at 113.95, still up 0.25% on the day.

Mixed manufacturing PMI data underpins demand for USD

Following Monday's retreat, the US Dollar Index stayed in a consolidation channel near mid-94s until today's employment data brought a fresh waving buying wave. According to the ADP, private sector employment increased by 235K in October, beating the market expectation of 200K. After spiking up to 94.75, however, the DXY reversed course as the manufacturing PMI data released by the ISM revealed a decrease to 58.7 in October from 60.8 in September. At the moment, the index is at 94.60, up 0.17% on the day.

  • US: Private sector employment increased by 235,000 jobs from Sep to Oct - ADP
  • Markit: Strong improvement in operating conditions across the US manufacturing sector
  • US: October PMI registered 58.7, a decrease of 2.1 points from September reading - ISM

At the end of its 2-day meeting, the FOMC is going to announce its monetary policy decisions later in the session. Although no changes are expected, investors are going to look for clues that would affirm a December rate hike. Nonetheless, markets have been pricing the rate hike probability since the October meeting and the greenback's reaction is unlikely to last long. 

  • FOMC Preview: 7 major banks expectation from November meeting

In the meantime, major equity indexes in the U.S. started the first day of November on a positive note with Dow Jones Industrial Average and the S&P 500 both gaining 0.2% at the moment, making it hard for the traditional safe-haven JPY to find demand. 

Technical outlook

FXStreet's technical confluence indicator determines the initial hurdle for the pair at 114 (psychological level/61.8% Fibo retracement) ahead of 114.50 (Oct. 27 high) and 115 (psychological level). On the downside, supports align at 113 (psychological level/20-DMA) followed by 112.30 (Oct. 19 high) and 111.35 (100-DMA/200-DMA).

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