The British pound pulled back a bit during the trading session on Friday, as perhaps a bit of profit-taking was in order. After all, there are a slew of issues out there that could cause major issues with risk appetite, and this pair of course is very sensitive to that. Ultimately, the 50 day EMA underneath which is painted in red on the chart could be a potential support level, just as the ¥140 level could be. Longer-term, I do believe that the British pound continues to rally, mainly due to the historically low levels, and of course the fact that Japan is likely to loosen monetary policy even further.
GBP/JPY Video 17.02.20
Furthermore, the Japanese economy could be heading into a technical recession, as last quarter was negative and the coronavirus could have an impact on the Japanese economy, albeit in the short term. All things being equal, with the British starting to consolidate their own government towards one direction, that should also help with negotiating between the UK and the EU. This furthermore should put upward pressure on the British pound, and a simple test as to whether or not the British pound could rally can be found against the US dollar. Quite frankly, the British pound is one of the few major currencies that has held its own against the US dollar, when most others have been falling apart. That in and of itself shows that the British pound is not something to be heavily short of. The ¥145 level above will be resistance, but if that can be broken it’s very likely that the market goes looking towards the ¥148 level.
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