- The GBP/JPY exhibited a significant rally during Monday's trading session, surpassing the ¥170 level once again.
- This momentum suggests that the market is gaining strength, and the question now arises as to whether we can surpass the recent highs.
- If we manage to do so, it is likely that the market will continue its upward trajectory toward the ¥125 level.
- On the downside, the ¥168 level is expected to provide support, reinforcing the "buy on the dips" scenario for this market.
The Japanese yen has been adversely affected by the Bank of Japan's implementation of yield curve control. This policy aims to keep interest rates on the 10-year Japanese Government Bond (JGB) at around 50 basis points. To achieve this, the Bank of Japan must increase the supply of Japanese yen, which diminishes its value. As a result, the Japanese yen has experienced significant depreciation against most other currencies over the past year.
Conversely, the British pound has been strengthening due to the Bank of England's tight monetary policy as the United Kingdom faces inflationary pressures. Given this environment, it is logical to observe continued bullishness in the GBP/JPY pair.
Buyers are Likely to Remain Active
Technically, the market's trajectory is supported by the rising 50-Day EMA, which is situated just below the ¥166 level. This level will draw considerable attention from market participants. Additionally, the ¥165 level is of great importance as it represents a significant round number with psychological implications. It has also served as structural support in the past. A breakdown below this level could lead to a more bearish scenario. However, if we remain above it, we can expect buyers to continue entering the market and taking advantage of the Japanese yen's overall weakness. This focus on buying "cheap British pounds" remains a prominent factor in the market.
At the end of the day, the British pound demonstrated a strong rally against the Japanese yen, surpassing the ¥170 level. The market's ability to break recent highs will determine its future direction. The Bank of Japan's yield curve control policy has weakened the Japanese yen, while the Bank of England's tight monetary policy has bolstered the British pound. Technical levels such as the rising 50-Day EMA and the ¥165 support level will influence market dynamics. Buyers are likely to remain active, seeking opportunities to capitalize on the weakness of the Japanese yen.
