- The British pound fell sharply against the yen in early Tuesday trading amid volatility following Bank of Japan comments.
- Despite short-term weakness, the analyst sees buying opportunities near ¥200 and the 50-day EMA, targeting a return toward ¥205.
The British pound has fallen significantly against the Japanese yen during early trading on Tuesday, as the market continues to be very volatile. The Bank of Japan made a statement overnight that it believes forex moves should represent fundamentals. To me, that’s something they’ve said multiple times in the past, and it always leads to the same thing: the Japanese yen strengthening for a little bit, only to see buyers coming back into the market and shorting it again.
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With that in mind, I’m looking at the area right around the 50-day EMA as an area that could offer support, right along with the ¥200 level. Because of this, I’m looking for an opportunity to buy this pair on some type of bounce. As things stand right now, it looks like we have plenty of pressure to the downside, so I would have to be very patient here. All things being equal, this is a scenario where I think you look for value and take advantage of it—not only are we in a significant uptrend, but we also have the interest rate differential between the British pound and the Japanese yen.
A Potential Target
All things being equal, this is a market that I think tries to get back to the ¥205 level, an area that has previously been very difficult to break above. If we can break above that level, then we could go much higher. Ultimately, I do think that’s what happens, and I favor the British pound over the Japanese yen. That’s probably true with most currencies, but the interest rate differential between the British pound and the Japanese yen is much wider than what’s found in other pairs, such as the Canadian dollar or even the Swiss franc against the yen.
Not all pairs are going to move with the same type of momentum, although they do tend to move in the same general direction. All things being equal, this is a market where I’m looking for a buying opportunity that I expect to take advantage of in the next day or two.
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