GBP/JPY Forecast: GBP Probes Higher Against Yen

• The British pound has shot higher during the course of the trading session on Thursday, as we continue to see a lot of upward momentum.
• We pierced the ¥195 level, but we have pulled back rather drastically as markets are rocked by GDP numbers in the United States coming out cooler than anticipated.
• However, there are a couple of other things that are worth paying close attention to in the meantime.

Bank of Japan

The Bank of Japan of course has a meeting overnight, and that is going to have a major influence on what people choose to do with Japanese yen related pairs. Ultimately, I do think that you could see a little bit of a pullback, because the Japanese will almost certainly try to do something to save the yen. However, even if they were to do something as shocking as raising rates, they are probably going to raise rates by 0.1% at best, meaning that the interest rate differential will still be a mile wide. Traders will continue to take advantage of the positive swap, and therefore I think we go higher over the longer term.

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On the other hand, we could even get something along the lines of intervention before it’s all said and done, but intervention will only offer value down the road that you can take advantage of due to the fact that again, you are going to get paid to hold this pair and that’s a huge deal. Institutions love swap and choose not to pay it at the end of the day under most circumstances. This is something that is lost to most retail traders, and unfortunately causes a lot of damage in their accounts. As an example, I happen to know that the USD/JPY pair and the GBP/JPY pair are heavily shorted by retail traders and have been for months. In other words, they are simply transferring money from their account to the accounts of professional traders. You do not want to be one of these traders. Worst case scenario, you are on the sidelines and waiting to see how the Bank of Japan meeting turns out.

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