- The GBP/JPY demonstrated a rally during Friday's trading session, finding support around the ¥168 level, like what was observed on Thursday.
- This indicates the market's readiness to continue its upward momentum, with the ¥170 level serving as the next psychological hurdle on the path toward ¥172.
- While the ¥170 level may pose minor resistance, the market has already breached it a couple of times, suggesting it may not be a significant obstacle.
Should the market successfully surpass the ¥172 level, it opens the door for a potential climb toward ¥175. The interest rate differential alone is likely to exert upward pressure on this currency pair. The Bank of Japan's commitment to yield curve control, capping the 10-year Japanese Government Bond (JGB) at a 50-basis point rate of return, necessitates the printing of additional Japanese yen and bond purchases. This practice has consistently weakened the yen's value, contributing to the broader softness of the currency.
Buying this currency pair on pullbacks has proven to be a successful strategy thus far, and there is no immediate indication that this pattern will change. The 50-Day Exponential Moving Average (EMA), currently located around the ¥166.50 level, is rising rapidly, providing potential technical support in the future. In fact, it is only if the market breaks below ¥165 that the possibility of considering short positions may arise. Even then, the 200-Day EMA would pose another obstacle should the market decline to that extent.
The Pound has Gained Momentum
Considering these factors, it remains advisable to continue buying dips in this currency pair. It appears to be a matter of time before a breakout occurs above the ¥172 level, potentially propelling the market toward the psychologically important ¥175 level. This level not only holds psychological significance but has also been historically relevant.
In conclusion, the British pound has gained momentum against the Japanese yen, buoyed by support around the ¥168 level. The market's upward trajectory suggests an eventual breakout, with the ¥170 level serving as a minor hurdle. The interest rate differential, coupled with the Bank of Japan's yield curve control policy, is likely to contribute to the pound's strength against the yen. Buying on pullbacks has been a successful strategy, and there are no immediate indications of a trend reversal. Traders should monitor key support levels such as the ¥165 level while anticipating a potential breakout above ¥172. The psychologically significant ¥175 level represents an important target for this currency pair.
Ready to trade our Forex daily forecast? We’ve shortlisted the best regulated forex brokers UK in the industry for you.