Pound Drops Against Yen

Alan Penny

16 September 2019

2 min read

British Pound forex trading

  • GBP declines against JPY in “risk off environment
  • Pound continues to have major uncertainty surrounding it
  • Japanese yen the ultimate safety currency
  • Major round figure

The British pound has gapped lower against the Japanese yen immediately on Monday, as traders reacted to the drone attack in Saudi Arabia. This caused the markets to become concerned about whether or not global growth can continue with explosive and high-priced energy markets. Ultimately, this is a market that should continue to drift lower from here anyway, in view of the technical analysis and the fact that we have been a bit parabolic lately.

Technical setup

gbp/jpy chart

GBP/JPY daily chart

The technical setup for this market makes quite a bit of sense, and the explosions in the Saudi desert were simply an excuse for this to happen. The gap from the ¥135 level makes considerable sense as it is not only a large, round, psychologically significant figure, but it was also the scene of major selling previously. That is something that should be paid attention to because large order flow comes into the marketplace at these large, round numbers. Ultimately, these 500 PIP levels tend to be very interesting from a longer-term standpoint.

There has been a downtrend for quite some time, but we’ve recently gone parabolic. This is perhaps due to hopes that the British won’t leave the European Union. This market should continue to be very erratic, and the fact that the ¥135 level is just above and where we had seen a lot of selling back in July suggests there must be a load of orders sitting up there.

The 50-day EMA underneath makes a nice target for short selling. If we can break down below there, it’s very likely that we could go down to the ¥130 level. This offered massive resistance previously, so it should now be supported. This is a market that is going to react to risk appetite, and as a result it’s highly probable that we are going to drop. The 38.2% Fibonacci retracement level is also at that ¥135 level, so there’s a good shot that this could have been the top  at least for the time being.

The trade going forward

The trade going forward is to simply fade rallies in this market, something that would have necessitated a lot of patience recently. However, as we have gotten a bit too far ahead of reason, it makes sense that at the very least, there needs to be a pullback that will offer value for those who are bullish. Prudent traders will be sellers aiming towards the ¥132 level with a stop loss above the ¥135 level, which would obviously mean a change of attitude in the market if it were struck. Pay attention to the safety trade, because the Japanese yen strengthens based on people running for safety overall.

Written By
Alan Penny

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