- The British pound has been all over the place against the Japanese yen during trading on Friday as risk appetite is pretty much all over the place.
- There is an interesting fundamental dichotomy between these two countries at the moment in the sense that the Bank of Japan is fighting inflation and likely to tighten monetary policy.
- Although we don't really know what that looks like working from a very low base to begin with.
But at the same time, we had the Bank of England on Thursday cut rates by 50 basis points, and there were several members, I think two out of the nine or three out of the nine were looking to cut even deeper. So that being said, it looks like the Bank of England is probably on a rate cutting cycle, and that will continue to work against the British pound in general.
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However, if the Japanese yen starts to lose strength, what I think is that the British pound with its higher interest rate swap is going to continue to attract inflows. And therefore, I would expect some type of recovery if we did in fact see the Japanese yen fail against other currencies.
What Could Get Me Bullish
In this pair, I think a daily close above the 190 yen level would get the market in an upward move probably towards the 50 day EMA, presently sitting around the 193 yen level. If we break down below the lows of the candlestick for Friday, then 185 yen is your next support level. And I think that would of course be tested. In general, I would expect a lot of noisy trading in this area as the market will continue to have to try to gauge where both of these central banks are currently heading.
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