USD/JPY stays calm around 112.50 as investors move to the sidelines ahead of Fed

• Wall Street sticks to recovery gains on Tuesday.
• US Dollar Index steadies near 97 mark.

With the trading action in the FX markets getting subdued in the NA evening, the USD/JPY pair started to move sideways near the 112.50 mark, where it was still down 0.3% on a daily basis. Earlier in the day, the pair fell to its lowest level in a week at 112.24 but staged a modest rebound in the second half of the day.

The US Dollar Index recovered to the 97 mark during the NA session following the upbeat housing data from the U.S. to provide a small boost to the pair. Additionally, reports of the Trump administration looking for other options to fund the border wall in order to avoid a government shutdown helped the market sentiment improve and made it difficult for the JPY to preserve its strength.

Reflecting the higher risk appetite, major equity indexes in the U.S. started the day higher and didn't have a difficult time staying in the positive territory. At the moment, the Dow Jones Industrial Average is up 0.6% on the day while the Nasdaq Composite is adding 0.85%.

With investors refraining from making large bets ahead of tomorrow's Fed announcements, the pair is likely to stay relatively quiet. Previewing the event, "Given that the risk balance is tilting to the downside, our outlook for the Fed has also shifted downwards. The FOMC forecasts (Dot plot) will reflect these same concerns, suggesting a slight downshift in the median projected path of the benchmark rate,” BBVA analysts said in a recently published report.

Technical levels to consider

The initial support for the pair could be seen at 112.20 (Dec. 10 low) ahead of 111.75 (Oct. 29 low) and 111.35 (Oct. 26 low). On the upside, resistances are located at 112.65 (100-DMA), 113.10 (50-DMA) and 113.50 (daily high).