British Pound Sees Big Move Against the Yen (SIGNAL)
The British pound rallied on Tuesday to show strength yet again, in a pair that pays you to own it.
GBPJPY
The British pound rallied a bit during the course of the trading session on Tuesday to break above not only the 50-day EMA but also the crucial 210-yen level. This is an area that I think has been difficult to overcome, but ultimately it certainly looks like the reaction that we have had to the noise coming out of Japan is a little overdone as the Japanese central bank is stuck dealing with debt that doesn't allow them to jack up interest rates.
At this point, if we can break above the top of the candlestick for the trading session, then I think it opens up the possibility of a move to the 215-yen level. Short-term pullbacks I think do offer value that people are willing to take advantage of all the way down to roughly 208 yen. Between that and the interest rate differential, I do like owning this pair.
Technical Support and Interest Rate Differentials
I think it was a little oversold, so we'll see if we can hold this area and on a daily close above the 210-yen level, I can make a strong argument for buying this pair. You get paid to wait for the market to rally and you also have the longer-term uptrend still very much intact.
A clear area of concern would be right around the 207.50-yen level because if we were to break down below there then I think it would lead to an even deeper correction, maybe down to the 205-yen level where the 200-day EMA is currently approaching.
All things being equal though, I do think we revisit the highs because quite frankly Japan is stuck. The Bank of England probably has to cut rates as well, but they have a long way to go before the interest rate differential tightens enough to have people shy away from owning this pair.
Potential signal: Buying this pair on a daily close above 210 with a stop loss at 208.50 and a target of 214 above.