- The GBP/JPY demonstrated strength during early Friday trading, surpassing the ¥173 level.
- Despite an initial pullback, buyers swiftly reentered the market to support its upward momentum. While the pound appears somewhat stretched, a significant interest rate differential between the two currencies suggests that the British pound will likely remain favorable.
- The breach of the ¥173 level indicates a potential advance towards the next significant milestone at ¥135, which carries psychological weight due to its round figure.
Strong support resides near the ¥171.50 level, which has acted as a solid floor over the past week. Given the current fundamental situation and the policies of the Bank of Japan, it isn’t easy to envision a scenario in which the Japanese yen gains strength shortly. Therefore, adopting a "buy on the dips" approach seems appropriate, with the ¥170 level potentially serving as a strong support level. The 50-day Exponential Moving Average (EMA) lies around the ¥160.50 level and is trending upward. While the market may exhibit volatility, it is evident that the predominant direction is upward. It is challenging to identify any substantial reasons for this market to turn bearish.
The Market Sentiment is Bullish
Effective money management will be essential due to the inherent volatility of the Japanese yen, which has been a source of turmoil for many traders. The market sentiment is bullish, and no apparent fundamental catalysts would prompt a significant reversal. Consequently, buying on dips will continue, especially as the Bank of Japan maintains its yield curve control policy. Reasonable position sizing is advised but given the current steady and reliable uptrend over the past several months, it makes sense to add to winning long positions.
Ultimately, the British pound has demonstrated notable strength against the Japanese yen, surpassing the ¥173 level during Friday's early trading. The two currencies' significant interest rate differential supports the pound's positive trajectory. Breaking the ¥173 level suggests the potential for further gains, with the ¥135 level serving as the next significant target. The solid support can be found near the ¥171.50 level. The Bank of Japan's policy and the prevailing fundamental situation make a Japanese yen rally unlikely in the near term. Consequently, adopting a "buy on the dips" strategy and exercising prudent money management are recommended. As the overall trend remains firmly upward, there is a focus on building positions during the next leg higher.
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