USD/JPY trades below 112 as markets gear up for FOMC announcements

• US Dollar Index struggles to push higher above 94.60 following dismal manufacturing PMI readings.
• US 10-year T-bond yield rises above 3%.
• Wall Street starts the day on a positive note.

After touching its highest level in nearly two weeks at 112.15, the USD/JPY pair lost its momentum and retraced its daily gains. As of writing, the pair was virtually unchanged on the day at 111.88.

Earlier today, the data from the U.S. showed that the private sector employment grew by 219K to beat the analysts' estimate of 181K. However, the greenback struggled to the bullish momentum it gathered after the data as the manufacturing PMI data released by both Markit and the ISM showed that the business activity in the sector at a slower-than-expected pace in July. As investors are getting ready for the Fed announcements later in the session, the US Dollar Index is up 0.03% on the day at 94.58.

"The August FOMC comes without a press conference or updated projections, leaving the FOMC statement as the only medium of communication. We think the main message will remain unchanged; in the face of sizeable stimulus, improving labor markets, and steadily firming inflation, further gradual rate hikes remain the most likely outcome,” Barclays analysts argue.

• FOMC Preview: 9 major banks expectation from August meeting.

On the other hand, the 10-year T-bond yield, which generally shows a positive correlation with the USD/JPY pair, rose above the 3% mark for the first time since mid-June to limit the pair's losses. Furthermore, Wall Street started the day higher on Wednesday to reflect a positive market sentiment in the NA session that makes it difficult for safe-havens like the JPY find demand. At the moment, the Dow Jones Industrial Average and the S&P 500 are both adding around 0.25%.

Technical outlook

The immediate support for the pair is located at 111.70 (daily low/20-DMA) ahead of 110.85 (50-DMA) and 110 (psychological level). On the upside, resistances could be seen at 112.15 (daily high), 112.60 (Jul. 20 high) and 113.10 (Jul. 17 high).