- The GBP/JPY has stalled against the lowly Japanese Yen during trading on Thursday as we have run out of momentum.
- That’s not a huge surprise, considering that we have shot straight through the roof.
- At this point, the market is overextended and the market forming a neutral candlestick just suggests that perhaps we could see a bit of a pullback into the weekend.
Keep in mind that the Japanese yen continues to get sold off based on the Bank of Japan and its monetary policy. They have been trying to keep interest rates below 0.25% on the 10-year note, meaning that they are essentially buying “unlimited bonds.” At that point, they are basically printing currency. As you flood the market with currency, the demand for it starts to drop quite drastically. That’s basically what we are seeing here, but it’s an interesting currency pair, to say the least, because there are a lot of different things that can move “The Dragon.”
Waiting for the Bank of Japan
The ¥166 level has been resistant multiple times recently, and therefore it should not be a huge surprise to see the market stall here. Furthermore, you need to keep in mind that the Bank of England has already stated that the UK economy is going into a recession, so while the Japanese yen itself is very soft, the British pound may be a little bit of a laggard when it comes to major currencies against the yen. In other words, if the USD/JPY pair rallies, while this market may follow right along with it, it probably moves a bit less than you would expect.
Pullbacks at this point probably offer value that you can take advantage of, but I think in the short term a pullback is more likely than not, as we have risen so far in such a short amount of time. The Bank of England will have to be very cautious about the UK economy going forward, so I do not think that they can tighten if things get as bad as people expect. Furthermore, the lack of energy in the United Kingdom will more likely than not slow the economy down quite drastically. At this point, the one thing that is probably pushing this market higher is the action of the Bank of Japan, which changing would completely shift the trend.
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