Insights 
VT 
Technical Analysis Indicators
Immediate resistance appears at Wednesday’s high of 205.35, while trendline resistance sits at 206.15. Additionally, the 161.8% Fibonacci retracement from the October 7-8 rally is noted at 207.56.
On Thursday, the Yen showed strong performance against the Pound among major currencies. Percentage changes in the Japanese Yen against other major currencies were recorded, with a notable strength against the GBP.
A heat map summarises currency percentage changes, using the left column for base currencies and the top row for quote currencies. For instance, the JPY/USD change reflects Yen strengthening against the Dollar. The document includes further analysis, forecasts, and context on currency markets.
Short Term Bearish Correction
Given the GBP/JPY rally is stalling below 205.00, we should prepare for a short-term bearish correction. The pair is technically overbought after a nearly 3% run-up this week, suggesting the momentum is fading. We just saw UK inflation data last week come in at 2.9%, which keeps the Bank of England from cutting rates and supports the Pound’s underlying strength.
The weakness in the Yen remains the dominant long-term driver, fueled by expectations of a looser fiscal policy in Japan. The new government recently confirmed its intention to introduce a supplementary budget aimed at economic stimulus, which will likely keep the Bank of Japan in an accommodative stance. This policy divergence with the UK is significant, as the BoJ is one of the few major central banks not actively tightening policy.
For the coming weeks, we can consider strategies that profit from a temporary drop, like buying put options with strike prices near the 203.00 and 202.10 targets. This allows us to capitalize on the expected pullback while managing risk. The 4-hour MACD indicator turning bearish adds technical weight to this short-term downward view.
Once the correction finds support, likely around the 202.00 level, we should look to reposition for the broader uptrend. The fundamental story of a strong Pound versus a weak Yen has not changed, so this dip presents a potential buying opportunity. We could then look at entering long futures contracts or buying call options for a move back towards the 205.00 highs and beyond.
We should also note that implied volatility for one-month GBP/JPY options has risen to 12.5%, indicating that the market anticipates bigger price swings. This is reminiscent of the volatility we saw back in late 2022, reminding us to use disciplined stop-losses on any position. The current environment calls for a two-stage approach: a tactical short position now, followed by a strategic long position later.
