- The British pound has rallied pretty significantly against the Japanese yen during the Monday session as we continue to see upward trajectory play itself out.
- That does make a certain amount of sense because the interest rate differential is wide enough to drive a truck through.
- I think you've got a situation where enough people are interested in being paid at the end of every day that there will be plenty of people out there hanging on to this pair, simply collecting swap at the end of the session.
Short-term Pullbacks are Opportunities
Short-term pullbacks should end up being buying opportunities and I would be very interested closer to the 203.50 level and area that we had broken above early during the session. After that, you have the 202 yen level and then the 200 yen level, both offering support and with the 50 day EMA racing towards the 200 yen level then I think you've got a situation where it does end up being like the perfect floor, if you will, for market memory is concerned. The 205 yen level above is a major barrier and did cause a little bit of a headache during the session, but really at this point it's just yet another psychological barrier. It's not really anything of significant importance.
I do think that the Bank of Japan is stuck and even if they do intervene, that's only going to attract a lot of inflows because you can just pick up cheap British pounds. Really what the Japanese yen needs is everybody else to start cutting aggressively. We just don't see that happening quite yet with inflation still relatively high around the world. With all of this being the case, the GBP/JPY pair continues to be one of my favorite trades in the overall markets, and as long as we see the same kind of interest rate situation, then I like the idea of being long, and at this point just don’t have any evidence of something changing anytime soon.
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