Trading The GBPJPY Currency Pair This Week

The GBP/JPY currency pair is a baffling one to watch. It spiked tremendously after the US presidential elections but has consolidated in a tight trading range as it retreats beneath its 50-day moving average, and hovers around its 200-day moving average. On Monday this week, The Dragon attempted to break out above the 140 level but found too much resistance there. A rally now seems an unlikely scenario for the GBP, however, a rise above 142 would bring plenty of bullish traders into the mix.

The current support level appears to be holding at the 200-day moving average of 138.50. This level also happens to be what technical FX traders understand as the Fibonacci retracement level. On Monday, the GBP rose above the critical 140 level but found it difficult to hold that line. That the GBP/JPY pair formed a negative candle is important. The 138.50 level is what binary options trader should be targeting. This means that put options based on current trends are required.

What should you be looking for when trading on the strength or weakness of the GBP?

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Today and tomorrow, it’s important to look for support at the 138.50 – 138.85 level. We are likely to see strong resistance trending in the 142.05 – 142.80 trend line, with the major resistance at 140.75. Recall that the Beast has been trading inside this current channel for 8 trading sessions on the trot. This indicates it is in a tight range and unlikely to show sudden swings in either direction. If the current downtrend continues, it will be important to look at the next lower level at 138, and then 136.45. As for the actual economic indicators in the UK, Brexit fears are causing significant volatility. Here is a snapshot of the most important UK economic indicators right now:

• Q4 2016 GDP grew at 0.7% quarter on quarter
• Q1 2017 economic growth is forecast at 0.71%
• the UK unemployment rate is currently at 4.8% and the employment rate is 74.6%
• UK inflation is now at 1.8%, approaching the BOE (Bank of England) target rate of 2%
• UK interest rates are at historic lows of just 0.25%
• January retail sales have increased by 1.5% year on year
• December 2016 service output increased by 2.8% year on year
• December 2016 industrial production increased by 4.3% year on year
• UK construction increased by 0.6% in December 2016 year on year

The above statistics are important in that they indicate robustness of the UK economy. Recall that Prime Minister May will be looking to trigger Article 50 of the Lisbon Treaty in April 2017 at the very latest. The GBP is weak against its rivals, but this bodes well for the FTSE 100 index which is currently at 7349.02, up 18.8% of a 1 year. The FTSE 250 by contrast, is up at 18,931.08, for an increase of 12.47% over 1 year.

What factors drive the GBP/JPY pair?                 

As one of the world’s major currencies, the GBP is especially important in global trade. As with all currency pairs, decisions taken by the Bank of Japan (quantitative easing/tightening) and the Bank of England (quantitative easing/tightening) are especially important. Both the UK and the Japan have historically low-interest rates, with the form in negative territory. The GBP/JPY is a wildly fluctuating currency, and this is why we saw such a tremendous rally of the GBP after the US presidential elections and a precipitous drop in the aftermath. The Brexit issue is weighing heavily on the performance of the pound and is no doubt that currency traders will be eyeing comments made by the Chancellor of the Exchequer, the Prime Minister and other high-ranking Brexit officials.

At one point, the GBP/JPY pair was trading at 160.66, but it plunged to 133.31 for a monthly return of -27%. This currency pair is also strongly affected by energy commodities. They yen is particularly sensitive to crude oil, gas and associated commodities. If there is geopolitical uncertainty in Asia, especially in China, traders will flock to buy the JPY. It is a safe-haven currency in the region. Therefore, it behooves binary options traders to watch political events in China to determine the strength or weakness of the JPY. Also, you will want to watch any important economic announcements by the Bank of Japan, especially in areas where accommodative policy by members of the policy board are made. This would weaken the JPY and strengthen the GBP/JPY pair.