USD/JPY is right above the 146.85 session low with the FOMC looming

• The dollar is hovering near 146.85 session lows ahead of the FOMC.
• Investors, watching from the sidelines with all eyes on the Federal Reserve.
• USD/JPY expected to consolidate above 150.00 – Credit Suisse.

The US dollar is heading south for the second consecutive day on Wednesday, extending its reversal from last week’s highs near 152.00 to test prices below 147.00 with all eyes on the Federal Reserve.

Cautious session ahead of the FOMC

Major currency crosses are trading within previous ranges in a calm session on Wednesday, with all eyes on the outcome of the Federal Reserve’s meeting.

Investors have priced in a 0.75% rate hike, the fourth in a row, although market speculation about the bank signaling softer hikes in the future has boosted the interest on the event. In that sense, any hint that may suggest the direction of December’s move might trigger a significant increase in market volatility.

On the macroeconomic front, the bright US ADP employment report has anticipated an increment to 239,000 private-sector payrolls in October, well above the market consensus of 195,000. The impact on the dollar, however, has been muted, with the USD Index practically flat on the day.

USD/JPY seen trading sustainably above 150.00 – Credit Suisse

In the longer-term, Analysts at Credit Suisse expect the pair to consolidate above 150.00: “Japanese media suggests the main umbrella union Rengo will ask for wage hikes of 5% next year, up from the 4% level it wanted for this year (2% was actually achieved). With longer-term inflation expectations rising too, it seems Kuroda still sees this as a unique opportunity to reset Japan’s inflation mindset and is unwilling to let go. We suspect that over time this will cause USD/JPY to trade above 150.00 sustainably, and we think dips in USD/JPY to recent lows around 145.25 offer good entry points for longer-term players.”

Technical levels to watch