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British Pound vs Japanese Yen Technical Analysis
The British pound initially pulled back during the trading session on Friday but then turned around to show signs of life. Ultimately, it looks like we are trying to break out to the upside again. Even though the British pound itself has done fairly well, the reality is that this pair is going to be all about the Japanese yen because the Bank of Japan continues to see a lot of reasons to keep its quantitative easing going. This is all about the interest rate differential between the Japanese and pretty much everybody else. The British just raised interest rates by 50 basis points 24 hours earlier, so it certainly makes sense that this pair continues to go higher.
The ¥180 level underneath is going to be a significant psychological support level and an area where we have already seen a little bit of noise. If we were to break down below that level, then it’s possible that we could drop down to the ¥177.50 level, possibly then the ¥175 level, which is where the 50-Day EMA is racing toward. In other words, there is yet another technical reason why we may see that area be the “floor in the market.”
To the upside, if we break out above the high from Thursday, then it’s likely that we go looking to the ¥185 level. Longer-term, I do believe that this pair goes looking to the ¥200 level, but obviously we will have the occasional pullback that we have to pay close attention to. I look at these pullbacks as a potential buying opportunity, as it offers value in the British pound itself.
The interest rate differential also keeps you getting paid on the way up to hold this as an investment, and I think that will continue to be the way forward. With this, I believe you remain in a “buy on the dips” type of market. At the very least, I would anticipate that we get a bit of consolidation before going higher, if not just simply breaking out to the upside.
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