USD/JPY awaits a catalyst with FOMC coming up

USD/JPY has started out in Tokyo within a tight range between 108.50 and 108.58, currently at 108.51. Overnight, the pair was also trading in a tight range, despite a drop in US yields. US 10yr treasury yields fell from 2.11% to 2.08%, partly in response to the US data, while 2yr yields mostly ranged sideways between 1.85% and 1.88%, awaiting the Fed meeting on Wednesday. 

The NY Fed's Empire State index of manufacturing sentiment plunged in June, falling a record 26.4pts in the month to -8.6, a 2 ½ year low. The abrupt fall was led by new orders which fell -21.7pts to -12, though shipments, employment and CAPEX plans all notably eased too. "The survey was conducted in early June when concerns about tariffs on imports from Mexico were at their height. Sentiment among US homebuilders slipped in June too, the NAHB index falling unexpectedly to 64 from 66 despite a big decline in mortgage rates this year," analysts at Westpac explained.

FOMC coming up

Looking ahead, the FOMC is coming up, as well as the BoJ. The main focus will stay with the Fed and while markets are pricing little chance of a cut this week, there is a 90% chance of a Fed fund rate cut by the July meeting, and this meeting around is expected to be uber-dovish. The dots will make up the market's mind as to how many cuts are likely to follow later in the year. Currently, markets are pricing in a total of three cuts priced by December.

BoJ in focus

On Thursday, the Bank of Japan (BoJ) wraps up a two-day policy meeting. "It is one of the small meetings, with no new forecasts on GDP and inflation. We expect the BoJ to keep its 'QQE with yield curve control' policy unchanged," analysts at Danske Bank explained. 

USD/JPY levels

Valeria Bednarik, Chief Analyst at FXStreet explained that from a technical point of view, the pair continues in consolidative mode, hovering around the 38.2% retracement of the 109.92/107.81 slide, unable to settle above the level:

"In the 4 hours chart, technical readings offer a neutral stance, with the price trapped between moving averages, holding above a flat 20 SMA but below a bearish 100 SMA. Technical indicators in the mentioned chart hold right above their mid-lines, lacking directional strength."