Surges Amidst Favorable Market Conditions

A glance at the longer-term chart reveals the remarkable bullish momentum of this market. 

• The GBP/JPY has experienced a significant surge overnight, with market participants closely observing the ¥180 level as substantial support.
• Notably, the Bank of Japan has shown little inclination to combat a weakening currency, indicating a lack of interest in tightening monetary policy.
• In contrast, the Bank of England remains actively engaged in combating massive inflation in the United Kingdom, setting the stage for a potential “perfect storm” in this currency pair.

A glance at the longer-term chart reveals the remarkable bullish momentum of this market. There appear to be no significant hindrances to prevent it from revisiting its previous highs. Currently hovering around the ¥184 level, which has posed as significant resistance, I believe a breakout above this level is likely. The subsequent target would be the ¥185 level, followed by the ultimate prize of reaching ¥187.50, and potentially even ¥190.

In the unlikely scenario of a significant breakdown below the ¥180 level on a daily close, the next support could be found at the 50-Day Exponential Moving Average at approximately ¥178. However, I firmly believe that the long-term trajectory of this market is upward, driven by the interest-rate differential between the two currencies and the favorable carry trade conditions that reward investors for holding the position. As such, I see no reason to adopt a bearish stance on this currency pair, and I am confident in taking a long position.

The only conceivable circumstance in which I would consider shorting this market would be if the Bank of England were to adopt an unexpectedly dovish monetary policy stance. Even then, caution would be warranted due to the substantial interest rate differential that favors the British pound. Overall, the prevailing market sentiment seems determined to push this currency pair higher, leaving no compelling reason to fight against this upward momentum. Consequently, attempting to short the British pound against the Japanese yen would not be a prudent strategy.

In conclusion, I believe that this pair will continue to see buyers coming back into the market. The interest rate differential is going to continue to see the Pound rallying against the Yen, and therefore I believe that longer-term holders will continue to collect swaps at the end of the trading session. Dips continue to be buying opportunities going forward, and the ¥180 level continues to be a major short-term floor in the market.

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