How to Trade the GBP/JPY Currency Pair this Week
The Dragon Remains One of the Most Volatile FX Pairs
The GBP/JPY currency pair is known by many names, and each of them evokes powerful images in the minds of forex traders. The Widow-Maker or the Dragon are but two terms used to describe the highly volatile GBP/JPY pair. Compared to other currency pairs, the GBP/JPY pair is one of the most volatile, owing to the wide fluctuations relative to other pairs. Consider for example that at the height of the global financial crisis in 2008, the GBP/JPY pair moved in excess of 7,000 pips, compared to the EUR/USD pair which moved an incredible 3,300 pips.
Currency traders tend to look for volatility since it is precisely this ingredient that translates into big profits when trades go right. The GBP/JPY currency pair is presently trading at 156.35, up 0.0700% or 0.1166 points on Monday, 9 May. The currency pair has a 52-week trading range of 151.6828 on the low end and 195.8851 on the high-end. If we look towards the currency pair for the year to date, it opened 2016 at 177.2852 and has since depreciated by 11.82% to its current level. Interestingly enough, this pair has enjoyed a period of stabilization between 3 March and 4 April when it traded in a tight range between 159.7708 on the low end and 161.2516. The pair appears to have a support level around 155.0184 and a resistance level of around 162.1732 over the past 3 months.
For currency traders, there are reasons why the Japanese yen has appreciated so much against a basket of other currencies, including the GBP. If we review the performance of this currency pair over the past 1 year, it is apparent that the GBP was trading at 195.7717 against the Japanese yen, and remained in a range between 190.8504 and 200.0000. Between August 2015 and December 2015, the currency pair weakened, as it dropped into the 180.5595 – 190.0000 range. From then the GBP/JPY pair plunged through to its present level at 156.3024. At the heart of the sharp depreciation is an economic policy in Japan known as Abenomics. This 3-step economic policy has been designed to make Japan competitive, but it has had unintended consequences of late. For example, the JPY has appreciated instead of depreciated relative to other currencies, and the net effect of that has been negative for the Nikkei 225 index. Companies listed on the premier Japanese index are going to see declining export numbers and this is impacting on the value of the index. A strong Japanese yen makes Japanese goods less competitive on global markets and this is why we have seen a reversal in the Nikkei 225.
Upcoming events that are going to impact on the currency pair this week
In the United Kingdom, we are going to see a slew of economic data being released, starting with manufacturing production month on month from March on Wednesday, 11 May, which will be followed by industrial production year on year for the same month. But the big news comes on Thursday, 12 May when an interest rate decision will be made by the Bank of England, followed by the MPC meeting minutes and information on the votes hike. The Bank of England also makes an announcement regarding its quantitative easing policy (QE). In Japan, the Coincident Index Prelim report will be issued on Wednesday the 11 May. This will be followed by the Thursday speech by the Bank of Japan Deputy Governor, and then the speech by the Governor of the Bank of Japan, Mr Kuroda. On Friday the 13th May, March data for the Tertiary Industry Index will be released.
About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.