Bank of England VS Bank of Japan
The British pound initially tried to rally against the Japanese yen during the day on Friday as we started to see a lot of “risk of behavior” around the world. Keep in mind that the British pound has its own host of problems, not least of which is the fact that the Bank of England may have lost control over inflation as seen in the bond market recently.
The Bank of Japan has been buying unlimited bonds, but the British pound is so weak that it’s very likely this pair might be a bit of an outlier, to say the least. If the Japanese yen continues to get sold off, this pair could go higher, but it is very likely to underperform any of the other pairs such as USD/JPY, CAD/JPY, etc. This will be especially true with the Canadian dollar if we start to see the crude oil market wake up like it appears that it is trying to do.
Looking at this chart, the 200-Day EMA sits just below, so it is worth paying close attention to. If we were to break through that, then we could get a big flush lower left we had previously. In that scenario, I think that the ¥156 will be targeted, possibly on the ¥155 area. The volatility in this market has been very nauseating as of late, so to say the least you need to be cautious with your positioning. Proper position sizing will be crucial in this market as it is so volatile under the best of times, and considering everything that’s going on right now, it’s very likely that it will be even worse in this scenario. The market has seen some very wild swings recently, and I think that will be the norm in this market, as we see both of these economies tank for various reasons. These are 2 very lightweight currencies at the moment, so this is essentially a fight between 2 very weak combatants.
In Summary:
- The fact that both of these currencies are very soft means that we will have a lot of indecision, and that is what makes this pair so volatile going forward.
- The 200-Day EMA being broken below could send this market lower in quick order, so pay close attention to the signal.
- Rallies at this point still have to deal with a lot of noise all the way to the ¥165 level.
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