• US dollar prints fresh highs across the board before the Fed.
• FOMC expected to raise rates by 75 basis points.
• US yields await steady, near the recent lows.

A stronger US dollar on Wednesday, ahead of the critical Fed decision, boosted the USD/JPY to 137.36, the highest level since Friday. The dollar holds a positive momentum, but the next move depends on Powell and his friends.

The current bullish short-term bias will be challenged in a few minutes with the FOMC statement that will trigger volatility across financial markets. If USD/JPY remains above 137.00, it would be positive for the dollar, while below, a test of 136.20 seems granted. More losses should open the doors to a stepper correction of the long rally to test 135.55 (July 22 low).

Eyes on the Fed

The Federal Reserve is expected to hike its key interest rate by 75 basis points to 2.50% on Wednesday amid high inflation. The statement (due at 18:00 GMT), particularly hints about the next steps, will be critical for market reaction. Jerome Powell’s press conference will begin at 18:30 GMT.

US economic data released on Wednesday showed ongoing signs of economic slowdown. On Thursday is due the first estimate of Q2 GDP, that could should the second consecutive contraction.

Treasury yields await the outcome of the meeting near the recent lows. The US 10-year yield stands at 2.77%, far from the 3.07% peak of last week. If the demand for bonds strengthens after the FOMC, the USD/JPY will likely suffer. On the contrary, a rebound in yields would add fuel to the rally.

Technical levels