The British pound has dropped a bit against the Japanese yen on Thursday, but as we head into the weekend, the question will be whether or not we are going to see a return to the carry trade.
GBP/JPY
The British pound has pulled back just a touch against the Japanese yen in early trading on Friday, as the ¥214 level has offered a bit of a barrier. The ¥214 level is an area that we'll be watching very closely because, if we can break above there, then I think the pound goes looking toward the ¥216.50 level.
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Short-term pullbacks here should see plenty of support. The ¥212 level would be a likely candidate, as it is an area that has been both support and resistance. The 50-day EMA is rising a bit, and it is trying to cross above the 200-day EMA to kick off the so-called golden cross. We'll have to wait and see if that ends up being the case, with buyers jumping in as well. I think it does make a certain amount of sense.
The interest rate differential still favors the British pound by a wide margin.
As long as we can stay above the moving averages, I think it's likely that, sooner or later, buyers come in and pick up cheap British pounds. In fact, you get paid at the end of every day quite a bit to do so, and we are starting to see that play out.
There was an ascending triangle that just got broken—a sloppy one, mind you—but you can make an argument that we could be looking at a move to about ¥219, or you could take a look at the double bottom, and that reads for a move to about ¥216.
So, it really just comes down to how you want to read this chart. But either way, getting paid at the end of every day makes a huge difference over the longer term, and traders will be wise to pay attention to that.
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