USD/JPY fails to preserve bullish momentum, returns to mid-113s

• USD/JPY advances to fresh multi-week highs at 113.75 on Tuesday.
• US stocks extend their gains for the second straight session.
• DXY sticks to daily gains above 94 ahead of FOMC.

After spending the majority of the day moving sideways in a very narrow 20-pip band on Tuesday, the USD/JPY pair gained traction in the first half of the NA session and advanced to its highest level in nearly a month at 113.75 before losing its momentum. As of writing, the pair was trading at 113.53, virtually unchanged on the day.

Today's data from the United States showed that the PPI rose by 0.4% on a monthly basis in November and carried the annual rate above the 3% mark for the first time since early 2012. Higher input prices for producers are likely to translate into a faster-than-expected rise in consumer inflation in the medium-term. 

Boosted by the upbeat macroeconomic data, the US Dollar Index rose above the 94 mark and continues to stay there in the positive territory ahead of tomorrow's critical FOMC meeting. In the last meeting of the year, the FOMC is going to reveal its updated economic projections and the 'dot plot.' "The new forecasts will include the new member Quarles forecast.  His dot will replace Fischer's who stepped down after the September forecasts.  Next year's regional bank rotation of FOMC voting members will shift in a more hawkish fashion as the two main doves, the Minneapolis and Chicago Fed represents, move off,” BBH analysts explained in a recent report. 

In the meantime, the solid performance of Wall Street persists with the Dow Jones Industrial Average and the S&P 500 both pushing higher to fresh record peaks on Tuesday. A hawkish FOMC combined with rising stocks could help the USD/JPY pair to make a decisive break above its recent range.

Technical outlook

The RSI indicator on the daily chart for the pair moves sideways above the 50 mark, suggesting that buyers are still controlling the price action. On the upside, resistances could be seen at 113.75 (daily high) ahead of 114.10 (Nov. 9 high) and 115 (psychological level). On the downside, supports are located at 113 (psychological level/50-DMA), 112.30 (20-DMA) and 111.70 (200-DMA).