The British pound has rallied quite significantly against the Japanese yen during trading on Thursday and it looks like we are going to do everything we can to reach the 214-yen level.
This is an area that had been significantly resistant previously, extending to the 214.50-yen level.
With this being the case, I think you have to look at the GBP/JPY pair through the prism of how the Japanese yen is doing globally. After all, it is under serious pressure against multiple currencies as the Bank of Japan finds itself in a situation where it cannot raise rates.
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But at the same time is facing a little bit of inflation. The reality is that the Japanese debt load is just far too high and they either have to keep low rates to service the debt or they and to do so they will destroy their currency, or they have to have a strong currency and then the debt becomes unsustainable.
So really at this point in time, Japan is in a bad situation, and I am watching this very closely as I think this could be a huge move just waiting to happen. I'll be watching not only the British pound against the Japanese yen, but the US dollar against the Japanese yen as it is typically the overall measuring stick. Over there you'll be looking at the 160.4-yen level as a sign of a massive breakout.
If we do pullback from here and of course that's possible, we could drop all the way down to the 50-day EMA right around the 211.20 level and then start buying pounds again. After all the interest rate differential continues to favor you so you do get paid to hang onto this pair regardless. I have no interest in shorting this market anytime soon. At the very least we would have to break down below 207 yen for me to have that conversation. As things stand right now, short-term.
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