The British pound has rallied significantly yet again during the trading session on Tuesday, reaching towards the ¥135.75 level. We are now pressing a major resistance barrier, and of course the 200 day EMA sits just above. The market continues to see extreme volatility and “risk on”, so it does make sense that this pair continues to rally as the British pound is considered to be a “risky” currency, while the Japanese yen is considered to be a “safety currency.”
At this point, we need to pay attention to how the daily bar closes, because if we can clear above the ¥136 level, then it is likely that we will make a move even higher, as it will be a major break of major resistance.
GBP/JPY Video 03.06.20
The British pound of course is very bullish due to the fact that the United Kingdom is starting open up again, but at the end of the day it has probably gotten a bit ahead of itself. Nonetheless, the market does tend to overdo things, especially in the algorithmic driven markets that we have these days. Because of this, it is not until we break down below the ¥135 level that I would feel safe shorting this market.
Ultimately, the market is overdone but I do feel that there is only a matter of time before we get a return to reality. Because of this, make sure that you have a significant amount of risk protection on, either via options or a reasonable position size with a reasonable stop loss. At this point, the market simply continues to pile into the “risk on trade” due to economies opening up. However, I suspect that once we see less than great economic response, then things can turn around.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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