Renewed Upward Momentum
The Relative Strength Index (RSI) rebounded after bottoming near the 50 line. This points to renewed upward momentum. A move above 211.00 would open the way to 212.12, the February 25 swing high. If price breaks above that level, the next target is 213.82, the February 10 high, with 214.00 beyond. If the pair falls below 210.00, 209.35 comes into view. Further downside could test 209.00 and then the 100-day Simple Moving Average at 207.91. Looking back to early 2025, we saw a bullish engulfing pattern that suggested a move toward 211.00 was likely. That technical signal proved to be a strong indicator, as the pair broke through the initial targets of 212.12 and 213.82 in the months that followed. Now, with the pair trading around 217.50, the underlying drivers for pound strength have only intensified.Divergent Central Bank Policies
The fundamental picture today is defined by divergent central bank policies, a theme that has rewarded long positions for over a year. Recent data from late February shows UK inflation remains persistent at 3.1%, keeping the Bank of England under pressure to maintain higher rates. In contrast, the Bank of Japan has only made minor adjustments to its policy, keeping the interest rate differential between the two nations historically wide. For those looking to position for further upside, buying call options with strike prices at 219.00 and 220.00 expiring in late April offers a defined-risk way to capture the next leg up. With yen volatility currently moderate, as measured by the JYVIX index at 9.5, option premiums are not excessively expensive. This strategy allows us to capitalize on the bullish momentum while capping our potential loss to the premium paid. Traders already holding long positions should consider protecting gains against any sudden reversals spurred by geopolitical shifts. Purchasing put options with a strike price near the 215.50 level could serve as an effective hedge. A bull call spread is another viable strategy, which involves selling a higher-strike call to finance the purchase of a lower-strike one, reducing the overall cost basis. We remember that last year, the 100-day simple moving average provided a key support level around 207.91. Today, that same moving average has risen significantly and now sits near 214.80, which we view as the new critical floor for the current trend. A decisive break below this level would indicate a serious loss of momentum and would force us to reassess the immediate bullish outlook. Create your live VT Markets account and start trading now.
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