USD/JPY rises to mid-112s on hawkish FOMC minutes

• DXY gains traction after FOMC releases December minutes.
• The FOMC voices concerns over economy overheating.
• March rate hike probability rises to 67.5%.

The USD/JPY pair extended its recovery in the second half of the NA session as the greenback gathered strength against its peers on the back of the FOMC December meeting minutes. As of writing, the pair was trading at 112.59, gaining 0.28% on the day.

The FOMC minutes revealed that the policymakers had a heated discussion over the possibility of the economy overheating amid fiscal stimulus and easy financial market conditions. A steeper path of rate hikes may be required in 2018 if these concerns materialize according to the statement. The CME Group FedWatch Tool shows that markets are now pricing a 67.5% probability of another 25 bps rate hike in March. Boosted by the hawkish tone of the statement, the US Dollar Index advanced to a new session high at 91.97. At the moment, the index is at 91.93, up 0.4% on the day.

With the FOMC minutes out of the way, investors' focus now shifts to Thursday's ADP private sector employment report ahead of Friday's NFP report from the United States.

Technical levels to consider

The first technical support for the pair could be seen at 112.50 (100-DMA) ahead of 111.75 (200-DMA) and 110.85 (Nov. 27 low). On the upside, resistances are located at 113 (psychological level/20-DMA), 113.65 (Dec. 21 high) and 114.75 (Nov. 6 high).