Continues to Find Buyers on Dips

I am more bullish than bearish, but I also recognize that we have some work to do, but a break to the upside would probably involve the Japanese yen across multiple pairs, not just this one. 

• The GBP/JPY has fallen a bit during the trading session on Tuesday to show signs of weakness but then turned around to show buying pressure.
• Ultimately, forming a hammer against major resistance suggests that it is only a matter of time before we get some type of breakdown, but we have a lot of technical resistance just above that could come into the picture.
• The 200-Day EMA and the 50-Day EMA indicators suggest the above and certainly cause a lot of trouble.

If we break down below the bottom of the candlestick, then I think it’s likely that we pull back into the consolidation area, perhaps reaching down to the ¥160 level again, maybe even the ¥157.50 level, and then followed by the ¥155 level. Keep in mind that the market is likely to see a lot of volatility if we do fall because there’s been so much aggressive buying pressure. Furthermore, the Bank of Japan continues to keep the 10-year JGB yield rate at 50 basis points or less, meaning that they are printing unlimited yen to buy unlimited bonds to keep those yields down. This has worked against the Japanese yen for some time, and it wasn’t until recently that we had seen a bit of a turnaround.

I Remain Bullish

If we can break above the couple of moving averages, then it’s likely that we could go look into the ¥167 level, where we feel rather hard from previously. That was when the Bank of Japan raised its limit from 25 basis points to the now widely regarded 50 basis points. Either way, I think you have a lot of noisy behavior, and then as a result you need to be very cautious. I think volatility will probably come into the picture often, so you will have to be cautious with your position size, but it looks like we are forming a massive “W pattern”, which of course is very bullish, and a lot of people will be paying close attention to it.

I am more bullish than bearish, but I also recognize that we have some work to do, but a break to the upside would probably involve the Japanese yen across multiple pairs, not just this one. Because of this, I think you continue to see the yen be the big driver more than anything else.