The British pound has broken down significantly against the Japanese yen, but I don’t think this has much to do with the British pound, basically it’s about the Japanese yen as it has strengthened.
We have broken down below the uptrend line that had been supporting the GBP/JPY pair lately, and by slicing through that uptrend line, I have become a bit concerned about the uptrend in this pair. I don’t think we are going to explode to the downside, I think this is more based upon the idea that perhaps the Bank of Japan isn’t going to keep its monetary policy as loose for as long as we thought. I believe that the 150-handle underneath is massively supportive, and therefore I think it’s not until we break down below there that I truly become concerned. Obviously, we need to reassess the entire situation, but I think that it’s only a matter of time before we rally again. After all, this is a market that is typically driven by risk appetite, but it the idea of the Bank of Japan stepping away from quantitative easing has spooked a lot of people. In the end, it is just speculation and there’s nothing written in stone about that idea, and I think the market may have gotten ahead of itself.
The volatility will remain, so I would be very careful about putting a lot of money into the market, but I think that given enough time I think that we will see a lot of buying pressure. However, I think it’s a very careful situation though, so add slowly, if we break out to the upside. Otherwise, if we break down below the 150 handle, it’s likely to be a market you should step away from until we get a longer-term signal.
Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.