Is GBP/JPY Leading The Way?
Christopher Lewis | Sep 25, 2018 11:47AM ET
The British pound has been the center of the Forex world as of late, and of course we discussed all things Brexit, and this has put a spotlight on the negotiations between the EU and the UK. However, that’s not the only thing that the British pound will trade on. One of my favorite pairs, “The Dragon”, or the GBP/JPY pair is often a proxy for not only the Brexit, but also global trade. What I find ironic is that although you read a lot of doom in the headlines, this pair is starting to tell a different story.
When I look at this chart, there’s a clear downtrend line that has been broken, and even though we had the wicked candle last week based upon the drama coming out of the Brexit negotiations, we have already gained about half of those losses. Beyond that, I would also point out that the previous downtrend line has offered support. However, it gets a little bit more bullish than that as the 200 EMA, pictured in black on my chart, has shown itself to be supportive. Below there colored in red is the 50 EMA, which looks very much like it wants to rally and cross above the 200.
The one headwind above is the ¥150 level, but I think eventually we will break above that area. That will be especially true if we either get some type of certainty with the Brexit, or perhaps God willing, the Chinese and the Americans treating each other with a little bit more openness. I don’t think that’s going to be the case, but quite frankly I think the world has given up on the idea that the United Kingdom is going to suddenly enter the Stone Age when it leaves the European Union. To say that the British pound is oversold from a longer-term perspective is putting a quite mildly. I believe that pullbacks will continue to offer value that traders are willing to take advantage of. Once we get above the ¥150 level, we could accelerate to the upside.
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