- During Tuesday's trading session, the British pound demonstrated a significant rally, breaking above the key level of ¥175 once again.
- This market continues to exhibit a "buy on the dip" pattern, implying that traders are seeking opportunities to find value as they navigate the GBP/JPY currency pair.
- The market's bullishness can be attributed to the substantial divergence between the monetary policies of the two central banks involved.
Divergent Monetary Policies
With the Bank of Japan scheduled to have a meeting on Friday, market participants are keenly anticipating any potential changes in monetary policy. However, preliminary indications suggest that the bank is unlikely to make any significant adjustments. As long as this stance remains unchanged, the British pound is expected to experience continued upward pressure.
Within this context, the market may present numerous opportunities to acquire British pounds at lower prices. The ¥172.50 level has previously served as a support level and is likely to offer support again. Should the price decline further, the next support level can be found at ¥171.50, where the 50-Day Exponential Moving Average (EMA) is also approaching. On the other hand, the market's bottom appears to be around the ¥170 level. If the price falls below this level, it could potentially trigger a significant downward move.
If the upward momentum persists, the ¥177.50 level will serve as an eventual target, followed by the major target at ¥180. Despite the market's tendency for noisy behavior, the abundance of support levels below suggests that these targets will eventually be reached. This scenario becomes more plausible if the Bank of Japan maintains its current monetary policy stance while the Bank of England continues its battle against inflation. Consequently, the British pound is expected to remain more attractive than the Japanese yen.
At the end of the day, the British pound continues to demonstrate strength against the Japanese yen. Traders should adopt a "buy on the dip" strategy to capitalize on value opportunities. While the Bank of Japan's upcoming meeting may attract attention, it is unlikely to bring about significant changes in monetary policy. As a result, the British pound is anticipated to experience continued upward momentum. Support levels at ¥172.50 and ¥171.50 offer potential entry points, while targets at ¥177.50 and ¥180 beckon on the upside. Traders should remain mindful of potential market noise but consider the underlying support levels as a driving force behind the currency pair's future movements.
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