The British pound initially tried to rally against the Japanese yen during trading on Tuesday, but gave back gains rather rapidly as it looks like we are hanging around in consolidation.
The British pound initially tried to rally against the Japanese yen during trading on Tuesday, but gave back gains as we continue to see more consolidation. It’s not a huge surprise, as traders are trying to assess risk appetite around the world and this pair is highly sensitive to that risk appetite. With this, I think you have a situation where the ¥180 level underneath continues to offer support, right along with the 50-Day EMA. The 50-Day EMA indicator is one that is followed very closely by traders around the world, and it is a major technical indicator for trends.
Ultimately, the Bank of Japan remains very loose with its monetary policy and I think that is going to continue to be the major driver of this currency pair. The Bank of England is rather tight with its monetary policy and it looks as if it’s not going to relinquish that tightness anytime soon, so I do think that we have a situation where the market eventually goes higher. With that being said, you need to be somewhat patient and wait for the opportunity, but it should present itself sooner or later. Ultimately, I do think that the market breaks to the ¥184 level, possibly even the ¥185 level. Anything above ¥185 allows the market to truly take off, perhaps bringing in more of a “buy-and-hold” scenario as we would continue to see traders take advantage of the swap for the longer term.
Unless the Bank of Japan changed its overall tune, it’s very difficult to imagine that this market falls for a significant amount of time. It’s not that it couldn’t, it’s just that it’s very unlikely for it to do so. In fact, it’s not that we break down below the ¥175 level that I would consider the trend threatened because quite frankly this is a very volatile currency pair under the best of circumstances, so a quick dip of 200 pips is something that you have to be prepared for. Nonetheless, I doubt that happens and therefore look at this pullback as a potential opportunity to pick up “cheap British pounds” against the Japanese yen.
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Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.