- The British pound initially dipped against the Japanese yen during early trading on Thursday, as we continue to see a lot of consolidation in general.
- For what it's worth, we dropped pretty significant amounts in the early hours, but as I write this, we just went positive again for the day.
- With this, I think that's a good sign that there are still plenty of buyers out there willing to get involved. With that being proven during the day on Thursday, I think it remains a buy on the dip scenario.
Central Bank Divergence and the Carry Trade
In fact, you have to keep in mind that the interest rate differential is wide enough to drive a truck through, as the Bank of England, although it did recently cut 25 basis points, still is expected to be very slow about cutting its rate. At the same time, the Japanese yen and the Bank of Japan did see a rate hike recently, but it's still only 0.75%, and they will have to be very cautious due to the heavy debt burden that Japan faces.
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I think you continue to see a lot of back and forth trading here, but overall, I still favor the upside because not only are we in an uptrend, but we do get paid at the end of every day to hold this pair.
A breakdown could open up a move down toward the 209 level, which should be support, followed by the 207.50 level, where the 50-day EMA currently lives, which should also offer support. To the upside, I think we're looking at a move toward the 215 level before it's all said and done, but it's going to take some time to get there, and you will have to be patient.
A lot of risk appetite could be influenced one way or the other on Friday after the jobs report in America. But at the end of the day, these central banks are moving in opposite directions at a snail's pace, meaning that the carry trade will be very much alive.
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