The GBP/JPY pair increased by 0.33% to 204.53, reaching a five-week high. This rise is due to geopolitical tensions affecting the Japanese Yen and boosting the British Pound. If the pair surpasses 204.50, it could target 205.00, 205.32, and potentially 206.00. However, if it drops below 204.00, it may head towards 202.71 and the 202.00 support level. From a technical standpoint, GBP/JPY is trending upward but currently sits at a neutral position with resistance at 204.50. The Relative Strength Index (RSI) shows bullish conditions; however, it suggests that buyer momentum might be slowing. To keep the bullish outlook, the pair needs to maintain a position above 204.50. If it falls below 204.00, a test of the 20-day SMA at 202.71 could happen, with additional support at 202.00.

Currency Heat Map

The currency heat map highlights the British Pound’s performance against major currencies today. It performed best against the Australian Dollar, showing only a -0.06% change against the JPY. This indicates the strength of the British Pound across different currencies. The table displays percentage changes, showing how the British Pound (the base currency) fares against currencies like the USD and JPY. Currently, the GBP/JPY pair is at a five-week high and is challenging the significant resistance at 204.50. This strength is driven by the widening interest rate gap, as the Bank of England takes a firm approach against inflation. Recent UK CPI data indicated that core inflation remains stubbornly at 3.1%, reinforcing a hawkish stance. For those looking to take advantage of a breakout, consider buying call options with strike prices above 205.00, aiming for a move toward the 206.00 level in the coming weeks. A bull call spread could also be a smart strategy to manage costs while benefiting from this expected rise. The RSI shows that buyers are still in control, even if momentum is slightly waning. On the other hand, if the pair falls below 204.00, it could indicate a potential reversal, and we should be ready to respond. Buying put options with a strike price near 203.50 would help protect against a decline toward the 20-day moving average at 202.71. This decline might result from profit-taking or an unexpected dovish shift from the Bank of England.

Yen Weakness and Market Volatility

The Yen’s weakness is significant, providing strong support for this currency pair. The Bank of Japan continues its ultra-loose monetary policy, as recent statements from policymakers indicate that sustainable wage growth is not yet in sight. This makes borrowing Yen to invest in higher-yielding Sterling attractive, supporting the GBP/JPY pair. We can recall the sharp swings in this pair during market adjustments in 2023 and 2024, highlighting its inherent volatility. Implied volatility is currently high at over 12% for one-month options, which increases option premiums. Therefore, traders should carefully consider risk-defined strategies. Selling cash-secured puts below the 202.00 support level can be a way to collect premiums for those who believe in the long-term upward trend. Create your live VT Markets account and start trading now.

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