- The British pound has fallen rather hard during the early hours on Thursday against the Japanese yen as we continue to see a lot of volatility.
- We had hit the recent highs that the Bank of Japan pushback on, and therefore we may have seen little bit of profit-taking in a market that had gone essentially vertical.
- Because of this, it should not be a huge surprise to see that we do pull back, and most traders will probably look at this as a potential value play just waiting to happen.
Looking at the GBP/JPY currency pair, I think there are plenty of areas you might get to see massive support, which of course would start with the ¥199 level which has been tested during the day. So far, the ¥199 level has proven itself to be at least somewhat interesting, so I think a lot of people will be looking at this through the prism of a potential short-term support level, but even if we break down below there I think you need to look at the ¥197.50 level as an area that could be supported as well. With this, I believe that you are looking for dips to take advantage of.
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Interest rate differential
This is all about the interest rate differential still, as the Bank of Japan cannot do anything to tighten monetary policy, and therefore you continue to get paid at the end of every session. This is a particularly wide interest rate differential, and it’s very likely that he continues to be so. However, I do believe that there is a certain amount of psychology attached to the recent high when the Bank of Japan came in and flooded the market, but if we can break to a fresh, new high, there’s no reason that the GBP/JPY pair will be able to go to the ¥205 level.
I have no interest whatsoever in trying to get short this pair, because not only are you “swimming upstream”, but you are also paying for the privilege to do so. With that, I am looking at these pullbacks as a potential buying opportunity going forward.
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