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By HaleStewart December 22, 2013 12:45 pm
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Monthly Pound/Yen Chart Is Bullish


Sometimes it's important to take a long view to better understand current market developments.  Case in point: above is a monthly chart of the pound/yen.  The yen rose from the end of the recession until the Bank of Japan announced its massive quantatative easing program last year.  The BOJs announcement helped to goose the pound's rally along in mid-2012.  Adding to the upward trend is over the last three quarters we've seen the UK economy pick-up steam, growing at a .7%, 2% and 1.9% annual rate respectively.  

Notice the amount of space the chart has to run.  The pound has cleared resistance in the lower 163's -- a level established in mid-2009.  Prices also just moved over the Fib level slightly above 168.  All the shorter EMAs are now moving higher and are being used as technical support.  In short, bullsih elements exist in abundance.

Also remember the fundamental background: the UK is expanding.  We've had 3-5 months of improving underlying data and three quarters of improving GDP growth.  While the Japanese economy is growing as well, the BOJ is deliberately working to devalue the yen, adding downward pressure to its value. 

Unless there's a fundamental change in the underlying picture, this is one of the best long-term charts in the market right now.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer


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