- During Tuesday's trading session, the British pound showed strength against the Japanese yen, breaking above the crucial ¥162.50 level.
- For some time, the market had been bouncing around, unsure whether it would be able to surpass this key level.
- However, on Tuesday, it finally did so, and it appears that the market is now poised to continue to move higher.
Bottoming Pattern Could Lead to Further Gains
One possible reason for this movement is the recent release of PMI numbers from the United Kingdom. While these figures were not as bad as some had expected, they still provided an excuse for the market to rally. Additionally, the Bank of Japan's yield curve control policy continues to hold back the growth of the Japanese yen. By keeping the 10-year JGB down to 50 basis points, the Bank of Japan is essentially flooding the market with yen, which could ultimately put pressure on the currency.
Meanwhile, the Bank of England is likely to remain hawkish, as both inflation and employment in the United Kingdom are more resilient than originally thought. This could lead to a further weakening of the Japanese yen and a strengthening of the pound. In fact, when looking at the structural set-up of the market, it appears that a bottoming pattern may have formed, which could lead to further gains.
Looking ahead, it is possible that the market could continue to move higher, with the next major barrier being the ¥165 level. This area has seen significant selling pressure in the past, so it remains to be seen whether the market will be able to overcome it. However, if the pound continues to show strength, it is possible that it could break through this barrier and continue to move higher.
Overall, it appears that the British pound is showing strength against the Japanese yen, and there are a number of factors that could be contributing to this movement. While it remains to be seen how the market will develop in the coming days and weeks, it is clear that there is a significant amount of momentum behind the pound at the moment. With this, I am a buyer on dips, as it looks like the “FOMO trade is in full force.” I have no interest in selling at this point, and would expect the other XXX/JPY pairs to follow suit sooner or later.
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