Yen May Rise Amid BOJ Discord, Driving GBP/JPY Lower
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The British Pound showed signs topping of below the 139.00 figure against the Japanese Yen, with prices producing a bearish Evening Star candlestick pattern. The pair subsequently pushed below trend line support guiding the move higher from swing lows set in mid-August, reinforcing the case for a reversal. Near-term support is now at 133.42, the 38.2% Fibonacci expansion. A daily close below this barrier opens the door for a test of the 50% level at 131.75.
Fundamentally speaking, the case for a Yen recovery seems compelling. Reports suggesting Bank of Japan officials are struggling to find common ground continue to surface. If Governor Kuroda has his way, the BOJ will emphasize negative rates over targeting monetary base expansion, an approach that has received a dubious reception from the markets thus far. The Yen is likely to rise if investors are underwhelmed when the central bank delivers a comprehensive policy review later this month.
Risk/reward considerations turned acceptable after the break below the 23.6% Fib at 135.49 and I have entered short GBP/JPY at 135.56, initially targeting 133.42. A stop-loss will be activated on a daily close above 136.76, the 14.6% level. I will take profit on half of the position and trail the stop-loss to the breakeven level when the first objective is reached.
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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