The dragon surrenders and loses its firepower. GBP/JPY is now at 118.53, under the previous all time low of 118.90 set back in January 2009. Ben Bernanke slayed the “dragon”, which was already weakened by his counterparts in London.
From here, there is a lot of room to fall in uncharted territory.
The main reason for the fall of GBP/JPY is the drop in GBP/USD. The growing notion of another round of QE in Britain accelerated after the MPC Meeting Minutes have shown readiness to act, possibly as early as October but more likely in November. This sent the Geppy (another name for GBP/JPY) down to around 119.30.
The FOMC decide not to embark on QE3 and also refrained from taking additional measures, apart from Operation Twist which was widely anticipated. The British pound dropped significantly and reached 1.55, yet another fresh 8 month low. It is now hanging above support at 1.5480. The next significant support line is at 1.5350.
On the other side, the Japanese yen also fell against the dollar. This was mainly due to no decision to lower the interest rate on excessive cash parked with the Fed. This provided a sigh of relief in Tokyo. But, these gains were limited, as the yen is also a safe haven currency.
So, the end result is a drop of GBP/JPY under support. Liquidity is currently low. At these levels, we will either get a bounce back up, but if this doesn’t happen soon, a deeper and bigger fall into uncharted territory is likely.
For more technical lines, see the GBP/JPY technical analysis on BO Crunch.
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