Sterling rose against the yen on Monday, with GBP\/JPY up 0.59% as markets weighed the risk of foreign-exchange intervention by Japanese authorities. The pair was last at 214.78 after rebounding from an intraday low of 213.41, keeping trade close to year highs.<\/p>\n\n
On the charts, price action is consolidating in an ascending triangle, while the cross has moved back above the 50-day SMA at 214.06 and pushed towards 215.00. The RSI has turned bullish, moving through the 50 neutral level and tracking towards 55.00. Resistance is seen at 215.00; a break there would bring 215.40\u2013215.50 into view ahead of 216.00, with the YTD high at 216.60 beyond. Support starts at the 50-day SMA at 214.06, then 213.00, followed by the 100-day SMA at 212.83.<\/p>\n\n
We see the GBP\/JPY chart forming a clear ascending triangle, which suggests a potential upward breakout is becoming more likely. The momentum is bullish as the pair holds above the 50-day moving average, putting the year-to-date high of 216.60 in our sights. Traders should view dips toward the 214.00 level as potential buying opportunities.<\/p>\n\n
To capitalize on this upward trend, we are considering buying call options with a strike price of 216.50 expiring in the next few weeks. This strategy offers the chance to profit from a move towards new highs while strictly limiting our potential loss to the premium paid. The market is pricing in increased volatility, but the technical pattern is strong.<\/p>\n\n
However, we must remain vigilant about the risk of intervention from Japanese authorities. Finance Minister Shunichi Suzuki stated last week that he is watching currency moves with a “high sense of urgency,” echoing the language used before the multi-trillion yen interventions of 2022. A sudden move by the Bank of Japan could cause a sharp drop, similar to the 4% single-day decline seen in October 2022.<\/p>\n\n
Given the opposing forces of bullish technicals and intervention risk, a long strangle is an attractive strategy for the coming weeks. By purchasing both an out-of-the-money call option and an out-of-the-money put option, we can profit from a significant price move in either direction. This positions us to gain from either a breakout above 216.60 or a sharp reversal below 213.00.<\/p>\n\n
For those looking to hedge long positions or bet on a pullback, a bearish put spread is a cost-effective option. We could buy a 214.00 put and simultaneously sell a 212.50 put to finance the position. This defines our risk and allows for profit if the pair falls back toward the 100-day moving average, which is currently near 212.83.<\/p>\n\n\n\n