- The GBP/JPY experienced a significant decline during Friday's trading session, falling into the ¥165.50 level.
- This level has been important multiple times in the past, and there is potential for a bounce off of it, opening up the possibility of a move back to the ¥168 level.
- Additionally, the ¥165 level offers psychological support, which may prompt more buyers to enter the market.
The 50-Day EMA is rising rapidly and sits just below the ¥164 level, adding upward pressure to the market. However, resistance can be expected at the ¥169.50 and ¥170 levels. If the market can break above these levels, it could lead to a buy-and-hold type of scenario.
It's worth noting that the ¥165.50 level is also where the market sold off dramatically in November when the Bank of Japan allowed the 10-year JGB rate limit to increase from 25 basis points to 50 basis points. However, given the current interest rate differential, which greatly favors the British pound, it makes sense that the market has done a complete "round-trip" from that point. Japan is in a position where it must choose between fighting higher interest rates or having a valuable currency, but not both.
There May be Further Downside
While the size of Friday's candlestick suggests there may be a further downside, it's not advisable to sell at this point or go short in the market due to the strong momentum to the upside over the longer term. Instead, traders should look for value and take advantage of it when it arises. After all, this is a market that has been very bullish for quite some time and there’s no reason to think that’s going to change.
At the end of the day, the British pound experienced a significant decline during Friday's trading session, falling to the ¥165.50 level. However, this level has been important in the past and could lead to a bounce, opening the possibility of a move back to the ¥168 level. The ¥165 level offers psychological support, with the 50-Day EMA also adding upward pressure to the market. While there is potential for resistance at the ¥169.50 and ¥170 levels, the market's interest rate differential greatly favors the British pound, which may continue to drive the market's upward momentum. As such, traders should look for value and take advantage of it when it arises.
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