• USD/JPY reversed an intraday dip amid the emergence of fresh buying around the USD.
• Upbeat ADP report reaffirmed hawkish Fed expectations and revived the USD demand.
• The cautious mood underpinned the JPY and capped gains ahead of the FOMC decision.

The USD/JPY pair gained some positive traction during the early North American session and inched back closer to daily tops, around the 114.00 mark in the last hour.

The US dollar attracted some dip-buying on Wednesday and reversed its intraday losses in reaction to upbeat US macro data, which, in turn, acted as a tailwind for the USD/JPY pair. The ADP reported that the US private=sector employers added 571K jobs in October, beating estimates for a reading of 400K by a big margin and reaffirming hawkish Fed expectations.

Meanwhile, the cautious mood – as depicted by a generally weaker tone around the equity markets – could benefit the safe-haven Japanese yen and cap gains for the USD/JPY pair. Investors might also refrain from placing aggressive bets heading into the key central bank event risk – the outcome of a critical two-day FOMC monetary policy meeting.

The Fed is scheduled to announce its decision later during the US session and is widely anticipated to begin tapering its $120 billion-a-month bond purchase program. The markets also seem convinced that the US central bank would be forced to adopt a more aggressive policy response amid fears of a faster-than-expected rise in inflationary pressures.

Hence, the focus will be on the accompanying monetary policy statement. Apart from this, Fed Chair Jerome Powell's remarks at the post-meeting press conference will be looked upon for clues about the likely timing when the Fed will hike interest rates. This, in turn, will influence the USD and provide a fresh directional impetus to the USD/JPY pair.

Hence, it will be prudent to wait for some follow-through buying before positioning for the resumption of the strong appreciating move from the 109.00 neighbourhood touched in September. In the meantime, repositioning trade might infuse some volatility in the markets and allow traders to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch