The British pound has rallied a bit during the trading session on Tuesday as we continue to see this pair bounce around the same area. Ultimately, this is a market that I think needs to determine where the next move is before you get involved. The market breaking down below the ¥162.50 level could push this market down to the 50 Day EMA. The 50 Day EMA is just above the ¥160 level, which is an area that a lot of people would be paying close attention to. If we were to break through that level could very well send the market much lower.
There are plenty of wicks just above that showed that it is going to be difficult to break above there, but if we did then we could open up the possibility of a move to the ¥165 level. Keep in mind that the pair is highly sensitive to risk appetite, so you need to be aware of what is going on around the markets overall, and if we are starting to see the markets shift in one direction or the other as far as risk appetite is concerned, then you will see that play out here.
The Japanese yen is a safety currency, while the British pound in this equation would be more or less a “risk-on” type of asset. The market looks as if it is trying to figure out what to do but it is also worth noting that we had seen a lot of long negative candlesticks recently, and those typically do have a bit of follow-through.
The British pound initially tried to rally during the trading session on Monday but has given back quite a bit of the gain to show signs of hesitation yet again. The last three days have seen the ¥163.50 level offer a bit of selling pressure in hesitation, and it is also worth noting that we have recently had three massive negative candlesticks, which typically will bring in more selling pressure. After all, you do not fall the way we have without some type of follow-through given enough time.
The 50 Day EMA underneath sits at roughly ¥160.50 level and is rising at this point. That could cause a little bit of dynamic support, and I certainly would not be surprised at all to see this market reach down to that area. In fact, if we break down below the Friday lows, it might be worth a short-term trade. Longer-term, we still have plenty of support at the ¥160 level, which extends down to the ¥159 level. If we were to break down through there, then we could get a pretty negative move and perhaps even change the overall trend.
Keep in mind that the Bank of Japan continues to fight rising interest rates via buying JGB bonds. Because of this, they are essentially “printing yen”, which is going to continue to drive the value of the currency lower over the longer term. In the short term though, you should also keep in mind that the Bank of England has been talking about keeping their balance sheet fall, and in other words not selling off some of the bonds that they initially thought to do.
British Pound vs Japanese Yen Weekly Technical Analysis
The British pound has fallen initially during the trading week against the Japanese yen, careening to the ¥160 level. However, we bounce from there quite violently as well, suggesting that there are still plenty of buyers out there. This is a pair that is highly sensitive to risk appetite so you need to keep an eye on that, and recognize that the market will more likely than not continue to have to be watched carefully. Not only will you have to keep an eye on this market, but you will have to keep an eye on other markets such as stock markets, bond markets, etc.
Looking at this chart, I would also point out that we are most certainly in an uptrend, so I still like the idea of buying dips but I also recognize that the Bank of England has changed its tune as of late, suggesting that they are going to continue to keep a lot of their balance sheet intact, meaning that they are switching to a slightly dovish stance all of the sudden. This has been reflected in the GBP/USD pair, and quite frankly the only reason this pair still has a bit of a bid to it is the fact that the Bank of Japan has gone full-bore quantitative easing.
That being said, it is probably worth watching the bottom of this weekly candlestick, because if it gets broken that could send this market much lower, signifying a massive shift in the overall risk sentiment. I do think that given enough time we will have to find some clarity, but as things stand right now, you still have to remain slightly bullish.
The British pound rallied a bit during the trading session on Friday to show signs of life against the Japanese yen. We have pierced the ¥163.50 level again, but at this point in time, I think we need to be very cautious about trying to get overly bullish. After all, we do continue to see a lot of noise, and therefore it suggests that we are going to have a lot of problems. Ultimately, this is a market that I think will continue to see a lot of volatility, especially as the Japanese yen has been so oversold. At the same time, the Bank of England has suggested that they are not willing to run off their balance sheet.
At this point, if we do pull back, I would anticipate that the ¥160 level will be supported as it has been in the past. We have bounced quite nicely, but I think more likely than not, we are going to go back and forth in a range between ¥160 on the bottom, and ¥165 on the top. Keep in mind that this pair is highly sensitive to risk appetite, so you do need to be very cautious about what is going on in other markets, because the Japanese yen could get bid if we get a lot of fear. Because of this, you will have to be very cautious, but I certainly think that the only thing you can count on is a lot of choppy and volatile action. With that, keep your position size reasonable, it is probably the one thing that will save you.
The British pound has rallied rather significantly during the trading session on Friday as we continue to see a significant amount of volatility. With the Bank of Japan reiterated its desire for yield curve control, this means that they are going to be buying bonds ad infinitum, thereby essentially “printing yen.” Because of this, the market is likely to continue seeing a lot of negativity when it comes to the yen, despite the fact that the British pound has been hammered against the US dollar.
That being said, the market has given back some of the gains, but we continue to see a lot of volatility. At this point, the market is almost untradable, and it most certainly demands that you use smaller than usual positions. Because of this, it is difficult to imagine being able to “jump all in”, but it is worth noting that the British pound might lag some of the other yen-related pairs, simply due to the fact that the British pound itself is in a little bit of trouble. Nonetheless, this is a market that I think given enough time will continue to see upward pressure, simply because of the yen itself.
The 50 Day EMA at the ¥160 level has offered massive support, and I think it will continue to do so. Because of this, I think that will be the “bottom of the market” as things stand right now, and a breach of that would obviously be a catastrophe for the British pound against the yen. That being said, with the Bank of Japan doing yield curve control, I just do not see that happening.
The British pound bounced from the ¥160 level during the trading session on Wednesday to show signs of life. It is also worth noting that not only is it a large, round, psychologically significant figure, but it also features the 50 Day EMA. Because of this, it should not be a huge surprise that we have at least stabilized here. Furthermore, the market had been falling so hard that one had to think that sooner or later we would have to at least stabilize, if not bounce. After all, we had been in a major uptrend for quite some time.
If we do break down below the ¥159 level, that could cause a major selloff at that point, in turn, the entire trend around. That being said, I think it is more likely than not going to be a situation where we see the market fall rather hard. At that point, the market would probably see an attempt to reach the ¥157.50 level, maybe even the ¥155 level after that.
Keep in mind that this pair is very sensitive to risk appetite, so it is worth noting that the volatility that we have seen in the market could continue to push this pair lower, but at this point, it looks like at the very least we are looking at a potential bounce. That bounce should face a lot of resistance above, so keep in mind that it will more likely than not be much different than it was on the way up. The ¥162.50 level could be a barrier that is difficult to overcome as well. I think at this point we are more likely than not going to see a lot of volatility.
The British pound initially tried to rally during the trading session on Tuesday but then turned around to break down below the ¥162.50, and then even broke down below the ¥161.50 level. The 50 Day EMA currently sits at the ¥160 level and is rising. It is because of this that I think we will see support sooner or later, but it is worth noting that the Bank of England has just recently stated that they are not going to start paring back bond purchases. In other words, they shifted to a little bit more of a dovish stance.
The size of these candlesticks tells you everything you need to know, that the uptrend is threatened and therefore I think what we have got is a situation where it is only a matter of time before we sell off. If we break it down below the ¥160 level, then it is likely that we will fall rather hard and go looking too much lower levels. The question now is whether or not people are starting to see the market price in a lot of negativity out there.
The question now is whether or not this starts to really accelerate? I think it probably does eventually, but the question now is whether or not the world starts to price in a lot of negativity, because if it does – this pair will have much further to go to the downside. On the other hand, we could get a bounce, but I think the ¥165 level will more likely than not act as a ceiling if we get a bounce.
The British pound has fallen hard during the trading session on Monday to reach toward the crucial ¥162.50 level. That is an area where we had previously seen a lot of resistance, so it does make a certain amount of sense that it should offer support based upon “market memory.” Furthermore, it is a market that is highly sensitive to risk appetite around the world, so pay close attention to how other markets are doing. For example, the stock market suddenly starts to meltdown, more often than not the GBP/JPY pair will go much lower.
If we break it down below the ¥162.50 level, then the next potential target could be the ¥160 level. That scenario currently features the 50 Day EMA, which is a longer-term indicator that a lot of people will follow. Furthermore, the ¥160 level is a large, round, psychologically significant figure, and therefore will attract a lot of attention. If we were to break down below there, then the uptrend would be over, and we would probably see quite a bit of economic devastation.
The size of the last couple of candlesticks certainly suggests that something has changed in this market. Because of this, I am starting to develop a little bit more of a bearish attitude, but I would not necessarily “go all-in” on a short position at this point. It will be interesting to see how things play out on a bounce, because if the ¥165 level cannot be recaptured at this point, we may start to see quite a bit of negative pressure.
British Pound vs Japanese Yen Weekly Technical Analysis
The British pound initially shot higher during the trading week but has given back the gains to show signs of massive negativity. At this point, it is worth noting that the British pound has broken below the 1.30 level against the greenback, which puts a certain amount of negativity on the British pound against everything. Furthermore, the Japanese yen is far oversold, so it is not a huge surprise that we would see something like this happen.
The shooting star will capture a lot of attention, and therefore I would not be surprised at all to see this market start selling off further. This will be especially true if the British pound dropped below 1.28 against the US dollar because it will show a massive change in attitude. At that point, the British pound would become toxic, and therefore I think this pair would fall apart quite drastically.
The ¥160 level underneath should be supported, as it is a large, round, psychologically significant figure, and an area that a lot of people will be paying close attention to. At that point, it is likely that the market will attract a lot of attention, but if we were to break down below there then we could drop another 250 points rather quickly. I do not necessarily see that happening, just that it is a possibility.
On the other hand, if we turn around and rally from here, then we will more than likely go looking to reach the top of the candlestick. I think this market needs to pull back, so this might actually be rather healthy.
The British pound has broken down significantly during the trading session on Friday, as we continue to see plenty of volatility in this market. The ¥165 level is an area that a lot of people will pay close attention to, as it was previous resistance. “Market memory” could step into the picture, offering a bit of support, but if we break it down below here we likely go looking to reach the ¥162.50 level. This is an area that had previously been resistance as well, and of course, the ¥160 level underneath there is a large, round, psychologically significant figure, and an area where the 50 Day EMA is currently crossing.
The size of the candlestick does suggest that we are going to get a little bit of follow-through, but that is not necessarily an opportunity to start shorting. Quite frankly, this is a market that is going to continue to see a lot of buying pressure underneath, so I think it is probably only a matter of time before we have that type of situation come into the picture. Because of this, I am waiting for a supportive candlestick to get involved with, perhaps on the daily timeframe.
It is not until we break down below the ¥160 level that I would be concerned about the overall trend. Keep in mind that we have recently broken through major resistance, and therefore it does suggest that there should be plenty of buyers going forward. Whether or not that plays out is a completely different question of course, but at this point, it certainly looks to be the most likely of outcomes.
The Yen also has a year-to-date decline against all its major Asian counterparts as well.
So why is the Yen so weak?
The main reason is because of monetary policy divergence.
Let’s break it down.
Firstly, monetary policy is the way a central bank achieves its goals for the economy (e.g. maximum employment, stable prices, etc.), using tools like interest rates, money supply, and even currency levels.
And where’s the divergence?
The Bank of Japan is still using its monetary policy to support its economy.
This is in stark contrast to what most other central banks around the world are doing = pulling back that support. They do this by raising interest rates/easing back on bond purchases.
The goal of such policy-tightening (not what the BOJ is doing) is to reduce money supply and demand levels in an economy = less money chasing after scarce goods = to lower consumer prices/inflation.
Monetary policy: Comfort food vs. a regular diet
Consider when a child is feeling down, his/her parents may have no qualms treating the child to some ice cream, candy, or chocolate bars.
Such sweet indulgences are meant to make the child feel better in a jiffy, but is (hopefully) just a short-term fix and also (again, hopefully) far different from the regular diet the child consumes as part of the daily routine.
Similarly, when the economy was suffering during the pandemic, central banks rolled out record-low interest rates and printed money out of thin air to keep financial markets supported.
Low interest rates = cheaper for households/businesses to borrow money = they have money to spend in the economy = the economy gets better
But now that economies are recovering and even posting red-hot inflation numbers, it no longer needs record-low interest rates and unlimited bond purchases
Hence, central banks are returning to their economy’s “regular diet” by tightening policy = paring down bond purchases/reducing the supply of money in the economy/raising interest rates.
Who’s already hiking rates?
Within the G10 space alone:
Bank of New Zealand – raised its benchmark rate by 125 basis points (1.25%) since Q3 2021
Bank of Canada – raised its benchmark rate by 75 basis points so far this year
Bank of England – raised its benchmark rate by 65 basis points since December
US Federal Reserve – raised rates by 25 basis points in March, perhaps another 50-basis point hike in May
But not so the Bank of Japan.
It’s keeping Japan’s benchmark interest rate at a record low of negative 0.1%, while buying up even more bonds.
Hence, the divergence in monetary policy.
How is policy divergence playing out in markets?
This divergence is evident in the widening gap in yields between Japanese bonds and its global counterparts.
Firstly, what are yields?
Yields are a way to measure how much money you could earn on an investment over a set period of time.
In the case for bonds, it’s calculated in terms of how much interest one would get paid if they held on to that bond till it matures/reaches the end of its tenure.
For context, bond yields have been climbing around the world.
This is because investors are selling off bonds in tandem with central banks that are reducing their balance sheets.
And when bond prices drop, their yields rise.
Here are the benchmark 10-year yields for these other countries (at the time of writing):
US = 2.88%
Canada = 2.87%
China = 2.82%
UK = 1.95%
Germany = 0.89%
Contrast the numbers above with Japan’s 10-year yields, which are capped at 0.25%.
As a policy, the Bank of Japan is buying even more bonds to keep bond prices elevated and limit its benchmark 10-year yields to no higher than 0.25% (this process is also known as “yield curve control”).
The goal for capping those yields is to keep borrowing costs low in Japan so that households/businesses can still borrow to stimulate the economy.
Government bond yields are often used as the benchmark by which other banks/financial institutions calculate the interest to charge the customers who borrow money.
Here are two charts that show how the widening gap/spread between US benchmark yields vs. Japan’s benchmark yields (10-year government bonds) correspond with the USDJPY’s performance:
See how those two lines are moving in sync with one another?
In essence, the wider the gap between US and Japan’s yields, the higher USDJPY goes (the weaker the Japanese Yen against the US dollar).
How are Japan’s capped yields affecting the yen?
The lower yields on offer in Japan suggests that investors would get more bang for their buck by buying bonds in other countries that are now posting higher yields (again, yields in this case are a measure of how much one could earn from investing in that particular bond).
At risk of oversimplifying matters:
Less demand for Japanese assets = less demand for the Japanese yen.
And when there’s lower demand = prices fall (all else equal).
Hence, the Yen has been falling as investors shun Japanese bonds.
From a fundamental perspective, markets are getting the sense that the Japanese economy is still too fragile – or at least the Bank of Japan thinks so of its own economy – and is nowhere near strong enough to be able to do without the ‘comfort food’ from the central bank.
But of course all that could change, as the BOJ faces increasing pressure to follow suit with other central banks in tightening policy … or perhaps even just to stem the Yen’s weakness.
Which brings us to the final question to ponder upon for this article …
Will the Yen eventually rebound?
As a market cliche goes … nothing lasts forever.
So yes, theoretically the Yen could eventually rebound.
But one of two things may need to happen first:
1) The Bank of Japan has to signal that its willing to abandon its ultra-loose monetary policies.
Policymakers need to be convicted that Japan’s economic recovery is sustainable, and that inflation is being fuelled by robust demand (a.k.a. demand-pull inflation) as opposed to cost-push inflation.
To be clear, this seems unlikely for a while more, at least through the end of 2022.
Still, look out for the Bank of Japan policy meeting next week (April 28th).
The slightest clue that the BOJ is ready to tweak its policy stance could trigger a big move in the Yen.
2) Policymakers intervene to curb Yen weakness
This has been done before, but not for quite some time.
The last time the Japanse government propped up the yen was back in 1998, when USDJPY traded above 140 and peaked at 147.66 in September 1998.
However, back in 2002 even when USDJPY surpassed 135, the government sat on its hands and didn’t intervene.
So it remains to be seen at what level Japanese policymakers will tolerate before trying to stop the Yen from weakening further.
Keep in mind that a drastically-weaker Yen causes its own problems for the economy.
Japan is a net importer of energy, which are widely denominated in US dollars. The weaker Yen forces Japan to spend more of its currency to buy the same amount of fuel, not to mention the other imported goods (e.g. food) and services that it now has to spend more money on. If the imported costs become too great and weigh on businesses/households, then the Japanese government may be forced to pay for subsidies to ease the pain.
That’s money out of the Japanese government’s pocket that could be spent on other things.
So until either of the above scenarios happen, shorting the Yen has remained a popular bet.
Last week, asset managers raised their short bets on the Yen to the most ever on record, according to CFTC data.
Overall, as long as this policy and yields divergence continues to play out between Japan and other major economies, that’s likely to keep the Yen on its weakening path for longer.
That is, unless the BOJ or Japan’s Finance Ministry switches tact and, in intervening to halt the Yen’s weakness, might do so while singing lines from Eminem’s monster hit from 2002 …
“Now this looks like a job for me
So everybody, just follow me
‘Cause we need a little, controversy
‘Cause it feels so empty, without me”
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
The British pound initially tried to rally during the trading session on Thursday but gave back gains as momentum ran away from the market. Quite frankly, this is a market that is far too overextended, so at this point, it makes quite a bit of sense that we would see a bit of a pullback. This pullback is desirable because quite frankly the market cannot go straight up in the air forever. The ¥165 level does make a certain amount of sense for a support level going forward, so I would see this as a potential opportunity.
The Bank of Japan continues to put a lid on interest rates, therefore “printing yen”, or at least offering a lot of quantitative easing. The Bank of Japan is one of the few places that is doing that at the moment, and therefore the Japanese yen will continue to get hammered. Because of this, the market is likely to see a lot of volatility, but I am more than willing to step on the sidelines and simply let the market come back to me, offering a bit of value underneath.
If we were to break above the top of the Wednesday candlestick, that would be yet another leg higher and would be even less stable as the market would be even more parabolic. I do not like that idea, so therefore I would be very cautious about buying this market all the way up there because quite frankly we are going to have a massive pullback sooner or later, however, we do not necessarily know when that is coming.
The British pound initially rallied during the trading session on Wednesday to break above the ¥168 level, before pulling back to form a less than attractive candlestick. By doing so, it looks as if we are starting to see a bit of hesitation finally. That being said, I think there is plenty of support underneath, especially near the ¥165 level. The ¥165 level has been important in the past, and therefore it would make quite a bit of sense that it could offer support based upon “market memory.”
The market is a little of her stretched, but quite frankly you cannot go against the overall bullish attitude, so you need to be very cautious and simply wait for an opportunity to get long again. Pullbacks should offer plenty of value, and therefore I think stepping to the side for a short while might make quite a bit of sense, as you can simply join the overall long-term uptrend. After all, the Japanese yen has been broken on multiple fronts, so there is no reason to think that it will be any different here.
The Bank of Japan continues to fight higher yields in the bond market, essentially “printing unlimited yen.” They are stuck in a situation where they will either have higher yields or have to save their currency, as things stand at the moment, they cannot do both and it appears that they are more interested in bond yields than the yen itself. There will come a time when they have to go the other way, but as things stand at the moment, it seems like we are a long way from that being a major concern in Tokyo.
The British pound has rallied rather significantly during the trading session on Tuesday again to show signs of life. We have pierced the ¥167 level, which is another sign of extreme strength. By doing so, the market looks as if it has absolutely no interest in slowing down, as the Japanese yen continues to meltdown.
This is an extraordinary move, and quite frankly one that makes me nervous. That being said, one thing that you need to keep in mind is that there will eventually be a pullback, and this one could be brutal. While I would not short this market, I would also not be overly surprised to wake up one morning and see that it had dropped 300 points. Moves like this are not natural, and eventually, liquidity becomes an issue.
That being said, dips should continue to be buying opportunities, with the ¥165 level underneath being the most obvious support level. After that, then you have the ¥162.50 level, and finally, the ¥160 level, where the 50 Day EMA seems to be approaching. It is not until we break below the ¥160 level that I would be concerned about the overall uptrend. Quite frankly, there is nothing on this chart that even remotely suggests that we are going to go lower, so at this point in time I simply look at dips as buying opportunities and therefore I am not even looking at selling opportunities at this point. If we do get a massive selloff, I anticipate that most people will look at it through the prism of a potential buying opportunity. Buckle up, things are about to get very noisy.
It was a quiet start to the week for the UK markets, with no major stats for the markets to consider this morning.
The lack of stats left the markets to rue economic data from China and the battle to curb the latest COVID-19 breakout.
In Q1, the Chinese economy grew by 1.3%, at a slower pace than 1.5% in the previous quarter.
While year-on-year, the economy grew at a faster pace, industrial production and fixed asset investments pointed to further weakness ahead.
In March, industrial production increased 5.0% year on year, down from 7.5% in February. Fixed asset investments rose by 9.3%, down from 12.2% in February.
Weak numbers from China, the latest lockdown measures, and the war in Ukraine weighed on riskier assets going into the open.
The current environment supports further supply chain disruption that would push input and output prices higher. Such an eventuality would force central banks to take more aggressive measures to tackle inflation.
At the time of writing, the FTSE100 was down 0.39% to 7,585.32. Despite the negative sentiment towards growth, mining stocks were up this morning to limit the damage.
The British pound continues to threaten the ¥165 level, as the Monday session was very choppy and quiet. This makes quite a bit of sense, considering that most of the banks around the world were closed. That being said, the market will be paying close attention to the Japanese yen in general, as the Bank of Japan continues to fight higher interest rates. By doing so, the market is likely to continue to see the Japanese yen seen selling pressure. That being said, the market is a bit overstretched at this point and I think it could make a lot of sense to see this market pullback.
The ¥162.50 level should be supported, as it has been short-term resistance previously. By doing so, the market pulling back to that area should see a little bit of support and perhaps a little bit of an opportunity to get a little bit of value. All things being equal, this is a market that I think will eventually try to break out above the ¥165 level. If we were to break down below the ¥162.50 level, then it is possible that the market could go down to the ¥160 level.
The ¥160 level is an area that a lot of people will pay close attention to, not only due to the fact that it is a large, round, psychologically significant figure, but it is also where the 50 Day EMA currently sits. I have no interest in shorting this market anytime soon, I believe there is far too much momentum in this market to think that shorting is going to be possible anytime soon.
British Pound vs Japanese Yen Weekly Technical Analysis
The British pound has rallied rather significantly during the course of the trading week to break above the ¥165 level. By doing so, the market looks as if it is ready to make yet another shot higher, and therefore I think that pullbacks will be thought of as buying opportunities. The market will continue to look at this through the prism of risk appetite as well, so make sure that you see the overall risk appetite in other markets as a secondary indicator.
The ¥160 level is the “floor in the trend” from what I can see, and therefore as long as we can stay above there I have absolutely no interest whatsoever in trying to short this market. Quite frankly, although the market is overdone, I just do not see an intelligent way to short this market and fight this type of momentum. Because of this, I am simply looking for dips to buy, or by an extension that happens.
If we do break down in this market, it will be some type of major “risk-off event” that will be obvious when you see it. Unless something drastic happens, or perhaps the Bank of Japan changes its overall attitude, I just do not see how this market will change its overall momentum. Eventually, the parabolic nature of the move may cause a pullback, but that should be thought of as a nice opportunity. With this being the case, I am looking for value and I plan on taking advantage of it. In fact, shorting the Japanese yen against almost everything seems to be the best trade in Forex at the moment, and it shows no signs of slowing down.
The British pound rallied a bit during the trading session on Friday to show signs of strength again, as the ¥165 level is now getting violated. By doing so, the market then allows the market to go much higher, as this is a major breach of resistance. Ultimately, this is a market that I think is going to continue to go higher but looking for a little bit of a pullback is probably the best way to approach it. After all, you do not want to “chase the trade.”
The ¥162.50 level could be an area of support, and therefore I think it is only a matter of time before we see some type of value hunting in that area. The market is most obviously bullish, and of course, the fact that the Bank of Japan continues to do quantitative easing to fight interest rates is going to continue to work against the value of the yen. That being said, the market is more likely than not going to continue seeing plenty of correlation to the risk appetite situation as well.
If we do continue to go much higher, it is eventually going to run out of momentum. The market is more likely than not getting a little overextended, but that does not necessarily mean that I would short this market anytime soon. In fact, I would not necessarily look to short this market until we get below the ¥160 level, which I think is the “floor in the market.”
This would obviously be a major change in attitude, and I suspect that it would take some type of huge fundamental news to make that happen, something that would be very “risk-off” and obvious.
The British pound has pulled back a bit from the ¥165 level, an area that has been important multiple times over the last several years. Because of this, the market ran into a bit of a brick wall, but at this point, it is still obviously very bullish. The question now is whether or not it can break through there? I do think it is very likely given enough time, but we may have to pull back rather significantly in order to build up enough momentum. The ¥162.50 level is a potential support level, as it has been resistant in the past.
If we were to break down below there, the market could go looking to the ¥160 level, an area that of course has offered support previously and is a large, round, psychologically significant big figure. Ultimately, this is a market that has been very bullish, but it may have been a bit overdone. Because of this, a pullback is probably the healthiest of outcomes, because quite frankly a market cannot go straight up in the air forever.
If we do break above the ¥165 level, then this is a market that would be a “buy-and-hold” type of situation, and it could lead to a multi-month, or perhaps even multi-year trade. That being said, it would become more or less investment, and not necessarily a trade. Because of this, I am very interested in the ¥165 level, as will most of the Forex traders around the world be. At this general intersection, we are about to make a big decision for the long term.
The British pound rallied during trading on Wednesday to reach above the ¥163.50 level, as we see the British pound continued to show solid strength against the Japanese yen. Looking at this chart, it is pretty easy to see just how bullish this market is, but we are getting a bit overdone. Because of this, I am looking for pullbacks to occur, which could offer a bit of value. The ¥160 level is an area that I would anticipate as being crucial for support, and I do think that it is probably only a matter of time before we would see buyers step in if we did in fact reach that area.
On the upside, the ¥165 level appears to be a major resistance barrier, so if we were to break above there, I think that the British pound could have a very strong showing against the yen, perhaps opening up the possibility of an explosive longer-term “buy-and-hold” type of market. In that scenario, I think it starts to look more like an investment than anything else, and I would anticipate that it could kick off a major move for several months, if not years.
This pair does tend to move based upon risk appetite, so pay close attention to that. Ultimately, this is a market that I think will continue to be very noisy, but it certainly looks as if we are trying to figure out where to go next. I think given enough time, we could probably have an explosive move, but I just do not see it happening right away. I believe there is far too much in the way of an overextension for that to happen easily.