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British Pound vs Japanese Yen Technical Analysis

The British pound initially fell during the day on Tuesday, to break down below the ¥185 level. However, the market has turned around to show signs of life and therefore it looks like we are trying to find some type of bottom here at this crucial level. After all, the ¥185 level has been important more than once, so it does make a certain amount of sense that we would see buyers step in and try to support the British pound in this area. Furthermore, it’s probably not a real stretch to say that the Japanese yen is overbought at this point.

There is chatter that the Bank of Japan might finally do something to fight its depreciating currency, via some type of interest rate normalization. That being said, the interest rate differential between these 2 economies is still wide enough to drive a bus through, so it makes no sense to think that the market will suddenly change that dynamic and therefore traders will still be willing to take advantage of the interest rate differential at the end of every night.

If we do break down from here, the 50-Day EMA comes into the picture for potential support, which is a major indicator for the trend. All things being equal, this is a market that I think will eventually find a way to turn things around and if we break above the top of the Tuesday candlestick, that might be the signal that the buyers have come back into the picture in order to drive the market back toward the ¥187 region.

In general, this is a scenario where we are going to see a lot of noisy behavior, and therefore I think this is a situation where the trader needs to be careful, but I still favor the upside over the longer term. Shorting this market means buying the Japanese yen, and therefore believing that the Bank of Japan is actually going to do something. So far, they’ve only hinted that they might consider it. Nonetheless, it’s enough to get people collecting profits from a huge move to the upside that we have seen.

For a look at all of today’s economic events, check out our economic calendar.

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