USD/JPY struggles for direction, stuck in a range above mid-113.00s ahead of FOMC

• USD/JPY prolonged its range-bound price move witnessed over the past one week or so.
• Investors seem to have moved on the sidelines ahead of the FOMC/BoJ policy meetings.
• The Fed will announce its decision this Wednesday and the BoJ is scheduled on Friday.

The USD/JPY pair lacked any firm directional bias and remained confined in a range, just above mid-113.00s through the early European session.

The pair, so far, has struggled to gain any meaningful traction and prolonged its subdued/range-bound price move witnessed over the past one week or so. Investors preferred to move on the sidelines and wait for a fresh catalyst from the outcome of this week's key central bank meetings – the FOMC decision on Wednesday and the Bank of Japan on Friday.

In the meantime, a combination of diverging forces failed to provide any meaningful impetus or assist the USD/JPY pair to capitalize on its gains recorded over the past two trading sessions. A generally positive tone around the equity markets acted as a headwind for the traditional safe-haven Japanese yen and extended some support to the USD/JPY pair.

On the other hand, the US dollar struggled to capitalize on the overnight positive move to a one-week high, instead witnessed some intraday selling. This, in turn, failed to impress bulls or provide any additional boost to the USD/JPY pair. That said, hawkish Fed expectations and an uptick in the US Treasury bond yields helped limit any meaningful USD losses.

Meanwhile, worries about the potential economic fallout from the spread of the Omicron variant and the imposition of fresh restrictions in Europe and Asia kept a lid on any optimistic move in the markets. Heading into the central bank event risk, the combination of diverging forces held back traders from placing aggressive bets around the USD/JPY pair.

Even from a technical perspective, the recent range-bound price action constitutes the formation of a rectangle on short-term charts. This points to indecision among traders and further makes it will be prudent to wait for a convincing break through the trading range before positioning for the next leg of a directional move.

Technical levels to watch