The GBP/JPY displayed a modest rally against the Japanese yen in Friday's trading session, marked by a breakthrough of the 50-Day Exponential Moving Average (EMA). This development hints at a potential upward trajectory, with the market eyeing a target around the ¥185 level.
It is essential to note, however, that the British pound's performance has been relatively lackluster compared to other yen-related currency pairs. This relative weakness of the pound should be considered. While short-term pullbacks might provide attractive buying opportunities, it's crucial to acknowledge that the British pound has not been a standout performer in the currency market. Therefore, if one intends to bet against the Japanese yen by buying this pair, there might be alternative options to explore.
Beneath the current market dynamics, the ¥180 level emerges as a critical support level, indicating ongoing efforts to ascend. The market's direction will be influenced by the performance of other yen-related pairs. If they continue to gain momentum, this pair is likely to follow suit. Nevertheless, the inherent softness of the British pound presents a challenge. It's worth noting that, despite the market's potential, shorting this pair is not on the radar.
In the event of a decline below the ¥180 level, the market could descend towards the ¥177.50 mark. This is an area that has shown itself to be of importance, and I think that will continue to be the case. We even saw a massive selloff turned around there previously.
The Market Should Go Higher Though It is Expected to Struggle
- A substantial breakthrough above the ¥185 level holds the promise of significant market acceleration.
- However, this outcome is contingent on a supportive performance by GBP itself.
- It is important to recognize that this pair is sensitive to risk sentiment, and any stagnation in risk appetite could dampen its prospects.
In the grander scheme of things, the Bank of Japan remains committed to a loose monetary policy, which creates an environment where the interest rate differential favors most currencies against the Japanese yen. Nonetheless, there is a looming concern about the British economy potentially suffering due to a European recession. In summary, the market exhibits positive potential, but navigating it may resemble swimming through mud given the various factors at play. This market should go higher, but it is going to struggle to get to the highs again. It’s my least favorite xxx/JPY pair now.
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