On Wednesday, the GBP/JPY exchange rate experienced a slight pullback from its upward trend on Tuesday. Tuesday was a significant breakout day, and it makes sense that there would be some exhaustion and profit-taking. However, the ¥162.50 level, which was previously a resistance area, should now act as a support level due to the significant bottoming pattern that has formed over the last few months. It's important to keep in mind that the interest rate differential between Great Britain and Japan is high, with the Bank of Japan working to prevent interest rates from rising by capping the 10-year yield at 50 basis points. This policy may cause the Japanese yen to continue to lose strength overall, as we saw last year.
If the market falls below the ¥162.50 level, we could see a drop to the 200-Day EMA, followed by the 50-Day EMA. The ¥161.50 level is the confluence of those moving averages, and we may see some support in that area. The significant bottoming pattern that took a long time to form after a significant selloff is impressive. As the yen continues to weaken against most other currencies, momentum in the market is likely to continue. The size of Tuesday's candlestick was substantial, which suggests that there might be some follow-through coming.
GBP/JPY Today's Trading Strategy
- My strategy going forward is to buy on dips until we break through those significant moving averages.
- On the upside, I believe that we will reach the ¥165 level, where there was a substantial sell-off in the past, and which previously provided significant support.
- It's crucial to note that the market can be volatile, and it's important to exercise caution when trading.
Traders should also be aware of important news and data releases that could affect market conditions, as we continue to see a lot of noisy behavior in general. For the rest of the week, this will probably come down to officials jawboning the market in one direction or the other, which can be quite noisy and unpredictable. Because of this, I am keeping my position size reasonable, and not getting over aggressive in this market, or any other for that matter as the market continues to have one freak out after the other. With this, I’m bullish, but I’m not recklessly bullish on this market at the moment.
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