The British Pound rallies again on Wednesday, as we continue to see it grind higher against the Japanese yen in a rate differential move.
British Pound/Japanese Yen
The British Pound continues to grind higher against the Japanese Yen as the Bank of Japan finds itself somewhat stuck. With that being the case, I am watching the 214 Yen level very closely. I think we have got a situation here where traders are going to be watching whether or not we can break through that barrier.
Actually, the real tell will be over in the Dollar against the Japanese Yen and whether or not it can break above the crucial 160.4 Yen level because with that you would have a major breakout of a high that was last tested, I believe, in 1990 and that would be a huge turnaround.
Interest Rate Differentials and Global Geopolitics
With this being the case, I think you have got a situation where traders will end up seeing short-term pullbacks as a potential buying opportunity. With the 50-day EMA just below the 211 Yen level and the 210 Yen level underneath there offering support, I do not have any interest in shorting this pair, but I do recognize it is going to be difficult to break through the resistance above.
The interest rate differential between England and Japan remains pretty wide and it does seem like the Bank of England may have to see whether or not inflation drops from energy because it has been sticky to begin with and the war in the Middle East of course makes that worse. So, I think the Bank of England is probably on hold at this point, keeping this interest rate differential pretty wide and getting traders paid at the end of every session. I remain bullish.