- The GBP/JPY encountered a turbulent start to the week as it attempted an initial rally on Monday but quickly relinquished its gains, showcasing the prevailing erratic behavior surrounding the currency.
- Notably, the 50-Day EMA hovered right around the top of Monday's candlestick, and a closer examination revealed a Friday candlestick resembling a shooting star.
- This pattern suggests that the pound is striving to break down towards the ¥180 level.
The ¥180 level, positioned beneath the current market activity, could offer a degree of support, given its historical significance. Previous instances have demonstrated that buyers tend to congregate in this area, and it's reasonable to expect it to provide substantial support once again.
Conversely, a reversal that propels the pound above the high points of the recent candlesticks could trigger a potential upswing towards the ¥185 level. This level has previously played a crucial role in the market. However, the prevailing sentiment indicates that the market is poised for short-term fluctuations more than anything else. In such a scenario, it's prudent for traders to exercise caution in terms of position sizing, considering the multitude of decisions the market faces in this vicinity.
Pay Attention to Position Sizing
While the Japanese yen may not be a favored option, it's evident that the British pound has displayed considerable weakness in recent times, and this trend is likely to persist. Short-term rallies that display signs of exhaustion present opportunities to assume short positions. However, a breakthrough above the recent candlesticks from Friday and Monday might warrant a reconsideration of one's stance.
In general, the notion of buying yen-related currency pairs holds a certain amount of appeal, but the British pound is currently viewed as the least favorable option among them. The market's behavior implies that it is still grappling with uncertainties, and it may take some time before a clearer direction emerges. (For example: I am long USD/JPY and CHF/JPY.)
In summary, the British pound is navigating through a challenging period marked by volatility and indecision. While the ¥180 level serves as a potential support zone, the market's short-term fluctuations make position sizing a critical consideration. Traders must remain adaptable as the pound continues to exhibit signs of weakness, with short-term rallies serving as opportunities for short positions, pending any significant breakthroughs in the market's behavior.
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