The popular forex pair has reached a strong level of resistance, but is it time to sell the pair?
Here’s my thesis.
What’s going on with the JPY?
Honestly, not much right now. The Japanese Yen has weakened over the last few months after having a super strong start to the year. Rate hike hopes faded, and the BoJ made it fairly apparent that rates wouldn’t move higher for a while. This tied in with the bullish stock markets saw a risk on environment return.
From an economic data point, it’s not been great, retail sales have softened, industrial output has cooled and Tokyo CPI which I’m keeping a close eye on is forecast to ease for a third straight month. Not really the conditions we want to see for a central bank to hike interest rates.
However, the US-Japan yield spread has fallen to around 263 basis points, the lowest in three years. This is a big point because the Japanese Yen tends to strengthen when the spread narrows.
What about the GBP?
The British Pound on the other hand has shown some surprising resilience.
This came after the Bank of England’s tone shifted slightly more hawkish to try and push inflation pressures lower. Odds of a rate cut this year have fallen from to 40% from nearly 100% supporting the GBP. However there’s a real risk of stagflation in the UK and this could be damaging.
UK yields have ticked higher against the US yields which gives a slight edge to GBPUSD higher.
What does this all mean for GBPJPY?
Well, if we take a look at the chart, we are trading within a large trading range between the highs of 200.00 and lows of 184.50. On the subject of these fundamentals, we could see the range remain intact.
For me I like the idea of shorts around these range highs, with stops well above the 200.00 level. This gives me an appropriate stop if I were to be wrong. Targets on the way down could be the key levels of support like 194.50, or 189.50.
If the price were to breach through the range highs, then we may see a GBPJPY much higher towards the end of the year.
As always, please go and do your own research, this is not financial advice just my own trading idea.