The USD is on the march against the majors. Gains against the Euro and Japanese yen highlight what is turning out to be a strong session for the Greenback. The news cycle of the next 30 hours has a great chance of driving the USD/JPY directionally.

Economic data out of Japan during the U.S. overnight has brought bearish overtones to today’s action toward the yen. Both the Coincident Index (Jan.) and the Leading Economic Index (Jan.) came in below expectations.

USD/JPY Technical Outlook

At press time, the USD/JPY has tested and rejected topside resistance at the Daily SMA (106.61). Bullish sentiment is evident on both the intraday and daily charts. Is the USD/JPY poised to break above resistance? The next 30 hours will give us that answer.

Last Friday I outlined a position trade to the long for the USD/JPY. Thus far, price is about 10 pips above entry. Given the proximity to topside resistance and the coming FED Interest Rate Decision, this trade recommendation is likely decided by tomorrow’s close.

Here are the key levels to watch for the remainder of the session:

• Resistance(1): Daily SMA, 106.61
• Resistance(2): 20 Day EMA, 106.62
• Resistance(3): Bollinger MP, 106.80

Bottom Line: The USD/JPY is in position to break out to the bull on tomorrow’s FED announcements. Barring a major surprise, confirmation of the coming rate hike for the USD will boost price well above the 107.00 handle.

Staying active in the position long from Friday is a risky play. The rewards are big to the upside, but the downside is considerable. Ultimately, it is buyer’s preference. If the position is up significantly ahead of the FED announcements, it may be a good idea to rack profits or move the stop to break-even.

Personally, I plan to let the trade ride into the announcements if we have not already tested the 107.50 handle. A payoff of at least 110 pips is available on a bullish break from current levels. If the 107.25-107.50 area is available in the pre-FED hours, exit the long and rack the pips!