The GBP/JPY rallied a bit during the trading session on Friday, as we are approaching the 50-Day EMA. The ¥161 level is an area that a lot of people will pay attention to, and therefore I think you have to look at it as a situation where we are trying to break out, but we have a ton of resistance just above.
If we can get above the 2 moving averages just above current trading, it’s likely that we could take off to the upside, perhaps opening up a move all the way to the ¥167 level. Granted, it’s going to take a lot of momentum, but as the Bank of Japan continues to do everything it can to keep interest rates lower if they have to continue to fight the rising interest rates, that means they will be printing unlimited yen, and thereby using them to buy bonds. This drives down yields, but it also floods the market with Japanese currency, devaluing it.
Things Could Change Quite Rapidly
- As the rest of the world is currently tightening monetary policy, the Japanese are doing the exact opposite.
- Furthermore, Great Britain continues to see inflation, and therefore people are starting to look at the possibility of raising rates going forward. As long as this is the case, we could very well see the pair break to the upside.
- On the other hand, if we were to turn back around and start falling, we will more likely than not see a lot of support near the ¥156 level, which is also where we have the double bottom that had recently formed. We are in the midst of forming a massive “W pattern”, so we could see things changing quite rapidly.
If we were to break down below the bottom of the W pattern, then it would open up the floor of this pair, perhaps sending the GBP/JPY pair back down to the ¥150 level, which is where we bounce from previously. That would be an extreme move, but it is a possibility that you need to keep in the back of your mind. It certainly looks as if the buyers are trying to pick things back up, but I think we have a lot of noise to chew through in order to get any signs of clarity at this point.
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