Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Will GBP/JPY Retrace?

Published 01/26/2014, 04:35 AM
Updated 05/14/2017, 06:45 AM

<span class=GBP/JPY" title="GBP/JPY" height="242" width="474" />

I have been a big fan of trading against the JPY since the autumn period. There are signs ahead for future JPY weakness, such as the inevitability for future QE, a deflation problem alongside a wider trade deficit occurring once a month. In contrast, the GBP is riding high, after posting a nine year best retail sales result, followed by a below expected unemployment rate.

However, despite this pair accelerating nearly 400 pips within the past week, I have noticed that the fundamentals listed below may put a halt to this pair's recent progress and I am now looking for a small retracement.

For example, despite the UK unemployment rate being within 0.1% of the Bank of England (BoE) threshold target, there are reports emerging that BoE policymakers are set to announce thatthere will be no imminent change in interest rates. The feeling within the BoE is that CPI is now within their 2% target, meaning there is no hurry to increase rates. Furthermore, economic releases from the UK are scarce up until Wednesday’s GDP release, therefore I expect buying pressure to settle down for the next few days.

Likewise, despite the IMF confirming suspicions that the Bank of Japan (BoJ) is not going to hit their two year inflation targets, they are also suggesting that because Japan’s CPI is starting toshow an increase, the BoJ will refrain from further easing for the next few months. It was expected that the BoJ would announce further easing during Wednesday’s monetary statement, however this was not the case. No signs of imminent QE from the BoJ will strengthen the JPY, devaluing this pair.

When looking to trade this pair, I see a support level held at 170.920, followed by a minor support level at 169.700. There is a further support level at 167.680. However, I don’t foresee this pair retracing by nearly 500 pips. The Williams Percent Range is showing that this pair has now been heavily overbought, and this is encouraging me to expect aconsolidation.

Overall, although I have said in the past that I am a big fan of trading against the JPY and it is clear to see that this pair has accelerated in value greatly in the past couple of months, it is expected that the BoJ is not yet going to announce further QE anytime soon. This, alongside the prediction in which the BoE will state that there will be no impending increase in interest rates, is encouraging me to short this pair for the time being.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.