• USD/JPY corrected sharply from over a two-decade high touched earlier this Wednesday.
• Overbought RSI prompted some profit-taking ahead of the highly-anticipated FOMC decision.
• The technical set-up still favours bulls and supports prospects for the emergence of dip-buying.

The USD/JPY pair witnessed a corrective pullback from a 24-year top touched earlier this Wednesday, though the downfall stalled near the 134.30 area. The pair quickly recovered a few pips from the daily low and was last seen trading just above mid-134.00s, still down 0.70% for the day.

The risk-on impulse - as depicted by a generally positive tone around the equity markets - undermined the safe-haven Japanese yen. Apart from this, the emergence of some US dollar dip-buying, bolstered by hawkish Fed expectations, turned out to be key factors that extended support to the USD/JPY pair.

From a technical perspective, perspective, the recent move up witnessed over the past one week or so has been along an upward-sloping trend channel and favours bullish traders. That said, the overbought RSI (14) on the daily chart prompted some profit-taking ahead of the highly-anticipated FOMC decision.

Nevertheless, the set-up supports prospects for the emergence of some dip-buying and warrants some caution before positioning for deeper losses. That said, some follow-through selling might still drag the USD/JPY pair towards testing the trend-channel support, currently near the 134.00-133.90 area.

A convincing break below would suggest that the USD/JPY pair has formed a near-term top and prompt aggressive long-unwinding trade.

On the flip side, immediate resistance is pegged near the 135.10-135.15 region ahead of a multi-year high, around the 135.55-135.60 area. The latter coincides with the top boundary of the aforementioned trend channel, which if cleared decisively would be seen as a fresh trigger for bullish traders.

The USD/JPY pair might then aim to reclaim the 136.00 round-figure mark and prolong the upward trajectory towards the next relevant hurdle near the mid-136.00s.

USD/JPY 1-hour chart

Key levels to watch