- The GBP/JPY has been on an uptrend against the Japanese yen, and Monday’s trading session saw the pound rally further.
- The GBP/JPY pair broke above the top of the hammer from the Friday session, threatening the ¥168 level and possibly even the ¥169 level.
- If the pair can breach these resistance levels, it could be a major "buy-and-hold signal" for the market.
Short-term pullbacks in the GBP/JPY pair should be seen as buying opportunities, as value hunters continue to target the pair during these moves. However, a break below the hammer from the Friday session could open the possibility of a move down to the 50-Day Exponential Moving Average (EMA) near the ¥164 level.
The interest rate differential between the Bank of Japan and the Bank of England is a major factor affecting the GBP/JPY pair. The Bank of Japan has continued its quantitative easing policy, keeping the 10-year Japanese government bond (JGB) yield at 50 basis points or less. Meanwhile, the Bank of England has been tightening rates, which is supporting the British pound.
Avoid Fighting the Upward Momentum
Despite occasional short-term pullbacks, the upward momentum in the GBP/JPY pair is strong, and traders should avoid fighting it. The British pound is displaying strength against the Japanese yen, which is likely to continue in the near term. While the Bank of Japan may try to defend the value of the currency by raising interest rates, it cannot do so without printing more currency.
In conclusion, the GBP/JPY pair is in an uptrend and may continue to rally in the coming weeks, depending on the Bank of Japan's monetary policy decisions. Short-term pullbacks in the pair should be viewed as buying opportunities, while traders should avoid buying the Japanese yen against the British pound. It's essential to use proper risk management, as although the trend is to go higher, there is a bit of an overstretched feeling to the pair now. Furthermore, staying up to date with the latest news and inflation numbers will be crucial. Pay attention to the JGBs, as the 50-basis point limit could come into effect in the markets as the Bank of Japan will be forced to print more yen to buy bonds and keep the interest rates suppressed. The volatility should continue to be extreme.
