- The British pound has spent a lot of energy recovering from the initial selloff on Monday. Momentum is still strong here.
GBP/JPY
The British pound has spent most of the day on Monday bouncing from the initial selloff. Initially, when the market woke up, it started to look at the situation in Venezuela, and we did see a little risk-off type of behavior. That has since abated, and it looks like this pair is going to continue to find plenty of momentum. As I write this article, we are near the recent swing high, and there is no reason to think that anything has changed. The market is currently consolidating near its highs, showing no immediate signs of a reversal.
Carry Trade Remains Dominant
This market is defying what some people would think of as the fundamental logic of a strengthening Japanese yen due to the Bank of Japan's rate hikes. But that being said, it is driven by the carry trade because even if the Bank of Japan starts to raise rates, the Bank of England still offers so much more interest that the carry trade is alive and well.
The market breaking out to the upside could open up a move to the 215 yen level, possibly higher than that. We will just have to wait and see. Just like the market breaking down below the 210 level opens up the possibility of a deeper correction toward the 50-day EMA near the 207 yen level. This is a market that I think will continue to see plenty of buy on the dip type of attitude. I do think there are plenty of people out there willing to take advantage of cheap British pounds in relation to the Japanese yen going forward. I have no interest whatsoever in shorting this pair as the momentum is obviously to the upside.
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