GBPJPY pair finished last week with a slight bounce up after 3 days of sell-offs, including a 3.5% drop on December 20. After such a massive fall it is quite possible that the short-term growth of GBPJPY will continue, but the perspectives of the next year indicate a high probability of an additional strengthening of the yen against the pound.
The market participants are actively putting expectations of a change in the monetary policy of the Bank of Japan into prices. After raising the yield limit of 10-year bonds from 0.25% to 0.5%, the next logical step would be a rejection of the below-zero key rate (-0.1%). Some people even consider such a decision as possible at the next meeting of the Japanese regulatory authority in January.
Friday's inflation statistics also encourages traders to bet on the yen's rise. Price growth hit a 40-year high again in both core and overall inflation. And tomorrow's data on unemployment and retail sales could additionally increase expectations of the cancellation of the ultra-soft policy by the Bank of Japan.
As for the pound, its perspectives do not look too confident. The latest U.K. GDP data released on Thursday shows a quarterly decline by 0.3% (worse than expected) and a slowdown in annual growth from 4% to 1.9% (against expectations of 2.4%). The actual entry into recession sooner or later will force the Bank of England to stop tightening policy, the only question is when exactly this will happen. And then even a rate above 4% does not guarantee the pound high stability.
The current GBPJPY decline wave has one more target left at the 61.8% Fibonacci level (157.8). However, the Stochastic indicator has fallen to its lows since March, showing a high probability of a local bounce up. Its target can be the Fibonacci levels of 50% (160.6) and 38.2% (163.3). After the release of the oversold area the decrease has all chances to renew.
The following trading strategy options can be offered:
1) Sell GBPJPY in the range of 160-160.5. Take profit – 157.8. Stop loss – 161.
2) Sell GBPJPY on the rise to 163.3. Take profit 1 – 160.6. Take profit 2 – 157.8. Stop loss – 165.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.
