USDJPY: Fed to Produce Breakout Situation

USDJPY is approaching a must-hold support level at 111.00.

I mentioned the 111.00 handle in Sunday’s forecast. You can see how the level has served as a pivot since mid-February.

In fact, the 111.00 area has played a role here since May of last year.

Typically I would look for a buying opportunity at a support level such as this.

However, I don’t like the fact that USDJPY was just here earlier this month.

You can see how the pair caught a bid at 111.00 between the 8th and 13th of March.

That isn’t necessarily a bad thing for USDJPY bulls, though.

The market is clearly in a holding pattern ahead of Wednesday’s Fed rate decision, and this latest move lower is merely part of that consolidation.

But I also don’t want to buy a market that failed to carve a higher high last week.

Not to mention the upcoming increase in volatility from Wednesday’s FOMC that is sure to make conditions unfavorable.

If I’m going to buy USDJPY, I would prefer to see a daily close above the 111.90 resistance area.

Sure, I’d forfeit those 90 pips, but a close above 111.90 would be the higher probability trade in my opinion.

What about a short here?

Well, remember that 111.00 is a must-hold level for buyers.

At least that’s my interpretation of the situation.

That means a daily close below 111.00 could present an opportunity to short USDJPY for a move to the 110.10 area.

And if the pair does roll over this week, it could signal the start of a broader correction toward 108.70.

Alternatively, a close above 111.90 could take the pair back to 113.20.

Remember that I use New-York-close Forex charts. That means each 24-hour session closes at 5 pm EST.

This is not a situation where you want to buy from 111.00 and sell from 111.90 in my opinion.

Doing so could get you in a heap of trouble, especially with Wednesday’s FOMC around the corner.

Playing the breakout here seems most appropriate given the circumstances.

And that means waiting for a daily close above 111.90 which would expose 113.20, or a close below 111.00 to open up 110.10 and perhaps 108.70.

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