The British pound has broken down significantly during the trading session on Thursday, reaching towards the significant ¥135 level. Not only is it a large, round, psychologically significant figure, but it is also an area that has previously been massive resistance. In other words, we have broken out and now are retesting that same level. If that is going to be the case, then it is obvious that there will be at least some type of reaction. Ultimately, the market looks likely to continue seeing a lot of trouble, as this pair is extraordinarily sensitive to risk appetite around the world, which seems to be all over the place right now.
GBP/JPY Video 12.06.20
We have seen a little bit of “irrational exuberance” in the stock markets, and this has been completely devoid of any type of realism when it comes to the global economic situation. This pair has been greatly influenced by that, as the Japanese yen has been absolutely pummeled for some time. Furthermore, the British pound has been overextended for quite a while, and I think that continues to be an issue to deal with.
At this point in time, we are coming back down to a more realistic level, but keep an eye on the ¥135 level, because it could tell the story. The daily close will be crucial and a breakdown below the 50 day EMA underneath could open up a fresh wave of selling. Either way, the market had gotten far ahead of itself so at the very least this is a welcome pullback.
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This article was originally posted on FX Empire