In Tuesday's trading session, the GBP/JPY experienced a modest decline, hinting at a potential return to the critical support level of ¥180. This level holds psychological significance and aligns with the 50-Day Exponential Moving Average, acting as a focal point for traders. While the market remains predominantly bullish, there are indications of a necessary pullback to restore balance.
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The recent surge in the GBP/JPY pair has been driven by bullish sentiment. However, some analysts argue that this bullishness may have become excessive, paving the way for a corrective pullback. This anticipated dip is expected to attract value hunters, as the British pound is predicted to appreciate against the Japanese yen in the long term.
A contributing factor to this trend is the Bank of Japan's continuation of its loose monetary policy, which suggests further depreciation of the Japanese yen. Meanwhile, the Bank of England is compelled to tighten its monetary policy due to substantial inflationary pressures in the United Kingdom. The resulting interest rate differential between the two currencies is likely to push the GBP/JPY pair higher.
- While a break below the 50-Day EMA could lead to a more significant pullback, it is currently deemed less likely.
- In fact, the market has already shown signs of rebounding during Tuesday's session, indicating that the correction will likely remain above the ¥180 level.
- As the longer-term trend reasserts itself, traders are keeping a watchful eye for a supportive candlestick pattern, which may serve as a buying signal.
Looking ahead, market participants speculate that the GBP/JPY pair has the potential to reach the ¥185 level in the near future. Momentum is gradually building, suggesting a growing likelihood of a bullish surge. Considering these factors, shorting the pair appears unattractive, while buying the Japanese yen may present challenges for the foreseeable future.
As the British pound retreats slightly against the Japanese yen, market participants anticipate a pullback towards the significant support level of ¥180. While the market remains bullish, the recent surge may have been overdone, necessitating a corrective phase. This pullback is expected to attract value hunters seeking opportunities to enter the market. With the Bank of Japan's loose monetary policy and the Bank of England's need for tighter measures due to inflation, the interest rate differential is likely to drive the GBP/JPY pair higher in the long term.
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