British Pound vs. Japanese Yen: GBP/JPY Trading Strategy

British Pound vs. Japanese Yen: GBP/JPY Trading Strategy

12:30 PM (EST)

Mr. British Pound has been on a choppy ride in the past few months against Ms. Japanese Yen on the forex dance floor, but the future could be bright for the GBP/JPY traders. If you are interested to learn more about the British and Japanese economies and analyze their currencies dance moves, then this article is for you!

Economic Stuff

UK Side

The British jobs market seems to finally have gotten on the path to recovery. Employment is up, wage growth is looking very healthy and there are tentative signs that productivity (the big missing element of the UK’s recovery so far) is improving.

The number of people in work rose by 42,000 in the most recent quarter and the employment rate (the percentage of people in work) is at a record high of 73.5%.

What does this say about UK economy?

First, despite inflation remaining very low and despite a high chance it will turn negative again the coming months, there is little reason at the moment to worry about a damaging period of “bad deflation”.

Second, the combination of record high employment levels and strong real earnings growth suggests that UK domestic economic demand should remain robust in the months ahead.

Finally, the numbers suggest the Treasury can look forward to stronger tax receipts in the rest of this financial year.

So to sum it up, although the jobs market is far from healed, recent numbers show that it’s at least heading in the right direction.

Japan Side

Japanese trade figures disappointed market participants for August, leading to more speculation of policy moves just days after the Bank of Japan (BoJ) kept its easing program unchanged.

Standard & Poor’s cut Japan’s long-term credit rating one level to A+, saying it sees little chance of the Abe government’s strategy (Abenomics) turning around the poor outlook for economic growth and inflation over the next few years.

Japan’s problems are mounting, with inflation near zero, the economy contracting last quarter and debt rising as the population ages.

What does this say about the Japanese Yen?

Mr. Japanese yen has dropped 30% against his major forex dancing partners since December 2012 when Mr. Abe came to power. However the long-term outlook (according to S&P) is stable, meaning we shouldn’t be worried about surprises at least, which makes the Japanese Yen a good trading candidate against more volatile currencies such as the British Pound.

Technical Stuff

On the monthly GBP/JPY dance floor, the pair has generally been moving up remaining above the  Ichimoku cloud and below the neckline of a Triple Bottom chart pattern.

On a daily basis, the pair recently completed a Double Top and now seems to be on its way back up to August highs of 195, since it has already broken above the 23% and 38% Fibonacci levels. There is a chance that we see a pullback in the coming days but a break above 50% Fibonacci and our pivot level of 187.80 could accelerate the pair’s up moves to our bullish targets

Sentimental Stuff

The market sentiment has mainly been bullish and on the way to recovery from August 24th free fall which was due to the Chinese stock market panic. You could normally expect the markets to correct themselves after such surprises. 54% of traders on one of the large FX brokers in the US are currently bullish on the pair, showing a bit of an indecisiveness coming up in the next couple of days, however the long-term outlook remains on the up side.

Supports and Resistance levels

Support Levels Turning Point Resistance Levels
184 187.80 195
181.50 186 189.50

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.