- The GBP/JPY experienced a rally during Tuesday's trading session, displaying signs of resilience as it tests both the 50-day and 200-day exponential moving averages (EMAs).
- This situation raises numerous questions, but it appears that the British pound is attempting to establish a foothold against the Japanese yen.
- More specifically, the yen is struggling against not only the British pound but also several other currencies worldwide.
Traders should closely monitor the bond market, as higher interest rates globally may exert pressure on the Japanese yen due to the Bank of Japan's (BOJ) ongoing implementation of yield curve control. The BOJ has set a hard limit of 50 basis points on the 10-year note, which is not currently under significant threat. However, as interest rates rise, market participants may predict that the BOJ will need to print more currency to purchase bonds. This scenario unfolded last year, and a recency bias could contribute to similar expectations.
Keep a Close Eye on the Bond Market
The ¥160 level has demonstrated support over multiple trading days, with the market unable to close below this threshold despite multiple attempts over the past week. This suggests that the ¥160 level is a significant barrier, and as long as the market remains above this level, buyers are likely willing to get involved. The next area of interest is the ¥162.50 level, which carries market memory significance. Should the market continue to rally, the ¥165 level could come into play as a critical resistance point. This level has previously posed a substantial barrier, so it is reasonable to assume that it remains intact.
Breaking above the ¥165 level would be a very bullish signal for the British pound against the Japanese yen, but such a move is not expected to occur within the next day or two. In summary, the British pound has shown signs of rallying against the Japanese yen, testing key EMA levels and demonstrating resilience amid market uncertainty. Traders should keep a close eye on the bond market and key support and resistance levels, as these factors will likely play significant roles in determining the pair's future direction. The entire market will be in a huge uproar after the noise that we are expected to see as far as interest rates are concerned, so with that being the case, this pair will clearly be one that you need to be cautious with.
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