USD/JPY slides back to 147.00 mark amid weaker USD, eyes ADP report ahead of FOMC

• USD/JPY meets with a fresh supply on Wednesday amid a modest USD weakness.
• Speculations for a less hawkish Fed continue to act as a headwind for the greenback.
• The Fed-BoJ policy divergence should limit losses ahead of the FOMC policy decision.

The USD/JPY pair comes under some renewed selling pressure on Wednesday and drops back closer to the overnight swing low, around the 147.00 mark during the first half of the European session.

Speculations that the Federal Reserve will adopt a less hawkish stance amid signs of a slowdown in the US economy keeps the US dollar bulls on the defensive. The Japanese yen, on the other hand, draws support from expectations that the government might step in again to soften any further steep fall in the domestic currency. The combination of factors exerts some downward pressure on the USD/JPY pair, though any meaningful corrective slide still seems elusive.

Traders might refrain from placing aggressive bets and prefer to move to the sidelines ahead of the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session. The Fed is expected to deliver another supersized 75 bps rate hike for the fourth time in as many meetings. The focus, however, will remain glued to the accompanying policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference.

Investors will look for clues about the pace of future rate hikes, which will influence the near-term USD price dynamics and determine the near-term trajectory for the USD/JPY pair. Nevertheless, the current market pricing still indicates over a 50% chance of a 50 bps Fed rate hike move in December. In contrast, the Bank of Japan has shown no inclination to hike interest rates and reiterated that it will continue to guide the 10-year bond yield at 0%.

This marks a big divergence between the two central banks and a further widening of the US-Japan rate differential, which should limit deeper losses for the USD/JPY pair. Even from a technical perspective, spot prices, so far, have managed to defend the 200-period SMA on the 4-hour chart. This further makes it prudent to wait for strong follow-through selling before positioning for an extension of the recent pullback from the highest level since August 1990.

Heading into the key central bank even risks, traders might take cues from the release of the US ADP report on private-sector employment. The data, however,  might do little to provide any meaningful impetus to the USD/JPY pair.

Technical levels to watch