The British Pound has risen against the Japanese Yen, breaking through the 202.00 level. This increase came amid mild risk appetite and some political uncertainty in Japan, which briefly pushed the Yen down to 201.35 before it began to recover. Market expectations for interest rate cuts from the Federal Reserve are being influenced by rising trade tensions between the US and China. In Japan, the possibility that Sanae Takaichi may not become Prime Minister has also muted the Yen’s decline due to ongoing political instability.

Technical Analysis

From a technical perspective, the overall sentiment remains bearish as long as the price stays below the 203.50 mark. Although selling pressure has eased somewhat, the upward momentum appears weak. The 4-hour RSI is still below 50, indicating the price is trapped in a bearish wedge. Support is found around 201.25, a critical Fibonacci retracement level, with 200.40 as the next target. A break above the 203.50 level is needed to confirm a potential rise from the lows observed in early October. The strength of the British Pound against other major currencies is evident, as it has increased by 0.29% against the Euro. The heat map below shows percentage changes for the base and quote currencies listed in the columns. While the Pound is currently gaining on the Yen, this rally seems weak. The broader trend stays bearish as long as the GBP/JPY pair remains below the 203.50 resistance level. This indicates that selling into any strength might be a smart strategy in the days ahead.

Trading Strategies

For traders anticipating a downturn, buying put options near the 201.25 support level could be wise. This approach allows for profits if the price drops toward 200.40 or even 198.85. It also comes with defined risks if the Pound unexpectedly strengthens. Alternatively, consider selling call credit spreads with a strike price above the 203.50 resistance area. This strategy takes advantage of time decay and allows profits as long as the price does not break that key technical barrier. It enables traders to benefit from the current weak upward momentum without needing a significant decline. Recent data from the UK’s Office for National Statistics revealed that inflation in September rose to 3.1%, exceeding forecasts. This situation is preventing the Bank of England from indicating any rate cuts, providing underlying support for the Pound. This helps explain why the Pound isn’t collapsing despite bearish technical indicators. On the flip side, the Bank of Japan’s Tankan survey from last week indicated declining business confidence, which supports continued loose monetary policies. Additionally, markets are pricing in a higher likelihood of a Federal Reserve rate cut, especially following last Friday’s disappointing US jobs report, which showed gains of just 95,000. These factors currently limit the Yen’s strength and contribute to the temporary optimistic risk sentiment. We have experienced similar volatile price movements before, particularly during the first quarter of 2024 when political uncertainty in Japan led to erratic swings. Given the expanding wedge pattern, a sharp breakout could occur, making long strangles a suitable strategy to capitalize on significant moves in either direction. This approach safeguards against being on the wrong side of sudden news-driven market shifts. Create your live VT Markets account and start trading now.

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