GBP/JPY Forecast: Pulls Back Against Yen

• During Wednesday's trading session, the GBP/JPY showed a lot of volatility and noisy behavior.
• It reached down towards the ¥163 level before bouncing back from a massive selloff.
• Currently, it is fighting a shooting star from the previous session that pierced the ¥165 level. While this pullback has offered a little bit of reprieve for the Japanese yen, it looks like the market is ready to turn things back around.

If the market breaks down below the ¥162.50 level, it will approach the 200-Day EMA, where the 50-Day EMA sits underneath. This is where the market is trying to form the so-called "golden cross." The shooting star from Tuesday's session was a significant exhaustion signal, which is not surprising considering that the market had reached the top of a significant selloff candlestick back in December. It was never going to be easy to get above that level, so the pullback makes sense.

Noise and Choppiness Ahead

The market may be noisy and choppy between now and the end of the week, but it is likely that buyers will come back into this market given enough time. The massive resistance at the ¥162.50 level should now offer a little bit of a floor. Additionally, the Japanese yen continues to suffer at the hands of the Bank of Japan and its yield curve control, which keeps the 10-year note down to 50 basis points. To do so, the bank may need to print unlimited yen at times to buy unlimited bonds. As the only central bank in the world that is currently in quantitative easing mode, the Japanese yen is a currency that most traders find easy to short. Meanwhile, the British pound has received a boost due to the Windsor Agreement coming to fruition, allowing the movement of goods and services across the Northern Irish border with the EU. Because of this, there had been quite a bit of optimism that seeped into the British pound overall, but whether or not it actually sticks is a completely different question.

When looking at this pair, it’s probably more about the Japanese yen than anything else, so we should see other currencies across the board continue to beat the yen down quite a bit. The Bank of Japan can have low yields if they want, but that comes with a lower-valued currency.