The GBP/JPY pair initially rallied during the session on Monday, but turned back around to form a bit of a shooting star. The fact that the shooting star is sitting on the 180 level is not lost on me, as I recognize that the 180 level is significant support. It’s been supportive several times, most recently during the month of September but caused quite a bit of bullishness that sent this market all the way back to the 188 handle. Now that we have fallen back to this area, I believe we are trying to break down and through this support barrier.
Given enough time, I think we will more than likely break down below the 180 handle, and that could send this market down to the 178 level next. That’s the next support level as far as I can see. You also have to keep in mind that the pair tends to move rather rapidly, as it is a favorite of momentum traders.
Bank of Japan
It’s ironic that the Bank of Japan continues to keep a very soft monetary policy, yet it appears that most currency pairs are not paying attention to this. The British pound of course is hampered by the fact that the Bank of England is going to have to keep monetary policy very loose for a very long time, and with that I feel that it’s only a matter of time before we do break down. The 178 level should give way to the 176 handle, and even possibly 175 after that.
On the other hand, we could get a supportive candle here which could lead to a bounce. I would feel much better if the GBP/USD pair rose during the same time as well, as it tends to be more or less a barometer of the strength of British pounds in general. This would be even better if the USD/JPY pair rose, as it would show a general selling off of the Japanese yen. In fact, I think the best way to play this market on a bounce would be to make sure both of those markets are doing the same.
