Dollar Strength Dominates FX Ahead of FOMC Decision

The US dollar has retained its bid ahead of this week's FOMC decision, with USD/JPY recovering from last week's selloff. The Fed hike expectations have firmed sharply, now standing at a near-90% chance of a 25bp move on Wednesday. This increased probability of an interest rate hike has helped drive the US dollar higher across several major currency pairs.

Meanwhile, AUD/JPY is clinging to support after falling over 4.6% in two weeks. While prices are currently holding above significant trend support levels, a bounce or shakeout may be on the horizon. The bears, however, remain cautious and are seeking opportunities to initiate fresh shorts should such a bounce arrive.

The USD/JPY technical analysis suggests that the pair is likely to retain its bid heading into the FOMC event, with traders firmly convinced of an interest rate hike. However, it remains susceptible to another selloff if the Fed or the FOMC forecasts fail to hint at a second hike currently priced in for December.