GBP/JPY remains strong, facing resistance near 209.00 but staying above 208.20. This stability is partly due to Japan’s weak GDP numbers and fiscal issues affecting the Yen. The Pound is taking advantage of the Yen’s weakness and is close to multi-year highs around 208.90, with support lying above 208.20. The Yen is under pressure from economic growth concerns and a plan for a USD 137 billion stimulus package.

Technical Analysis

In technical terms, GBP/JPY is stabilizing after a 1.7% rise over two weeks. The RSI shows that momentum is slowing from overbought levels, while the MACD indicates ongoing positive momentum. Immediate support is found at 208.24, with additional support at 207.35 and trendline support around 206.30. On the upside, if the pair exceeds Tuesday’s high of 208.95 and breaks the 209.15 Fibonacci extension, the 210.00 level could come into play. The pair is targeting 210.30 based on triangle measurements. This week, the Yen is performing best against the Swiss Franc. Overall, the currency has shown significant drops against most peers, highlighting its weakened status. A currency heat map displays percentage changes among major currencies, providing a thorough weekly overview.

Investment Strategies

The fundamental softness of the Japanese Yen is the main story, making long GBP/JPY positions appealing. The Bank of Japan shows no signs of changing its ultra-loose monetary policy, especially after last week’s disappointing national Core CPI for November, which was only 0.5% year-over-year. This contrasts sharply with the Bank of England, which is maintaining rates to combat inflation. In this context, we see value in buying call options with strike prices targeting the psychological 210.00 level in the coming weeks. The technical setup supports this, as the pair is holding above the 208.20 support level. This suggests that any downturns present buying opportunities rather than a trend reversal. For those interested in generating income, selling out-of-the-money put options with a strike below the 207.35 support level could work well. This strategy takes advantage of the expectation that the pair will remain stable and not drop significantly anytime soon. The main risk is a sudden policy change, but that seems unlikely before the new year. We recall the classic Yen carry trade dynamics that propelled the pair to extreme highs leading up to 2008. The interest rate gap between the UK and Japan is now wider than it’s been in over a decade, supporting this upward movement. Maintaining a break above 210.00 would be significant, as those levels haven’t held since mid-2015. The overall weakness of the Yen against all major currencies last week strengthens our conviction. The Yen has lost nearly 1% against the US Dollar and over 1% against the New Zealand Dollar, making this story uniquely about Japan. Thus, even if the Pound weakens independently, the Yen’s drop should cushion the GBP/JPY pair. Create your live VT Markets account and start trading now.

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