There is a general GBP weakness and just like it was the trend last year, it is good to reap profits when the chance is still there. Well, I think the Yen is ready to take this pair lower after that stellar move up in the last couple of weeks. It is almost safe to say that this run is almost exhausted if not already done. Remember some members of the MPC are calling for stronger GDP growth and or inflation expectation and today it looked like their requests were heard. Core and headline inflation exceeded expectations at 2.4% vs. 2.2% and 0.5% vs. 0.4% respectively which caused the GBP to soar momentarily before spiraling lower. In my opinion it looks like MPC members saw this coming and were just looking for confirmation before concluding and voting for more tightening. Investors were expecting the GBP to soar higher and break a couple of resistance zones but that didn’t happen as it has been the case with time after time new highs aren’t attained despite positive data.
Technically, if you analyze this pair from a top down approach, which is from the monthly, weekly chart downwards, there is a clear direction set by supply demand dynamics. The path of least resistance is obviously anti-GBP but then we cannot just enter without proper and sure signals. Notice the gap up which happened four weeks ago after Theresa May announced that snap elections, price action trended higher and the resistance trend line was broken. Looking critically, there was a buy signal printed by the stochastics just before the week closed. Price moved upwards but stalled last week and this is happening at key support –resistance zones in relation to the Fibonacci tool. Price action is overextended from the BB point of view. These scenarios aren’t so good when it happens either on the sell or the buy side as any closure above these bands will mean price correction until the arbitrage is filled. It is therefore safe to sell especially now that a sell signal has been printed. Take it as a swing trade and hold it for a couple of days if not weeks unless of course your stop loss is hit.
I will therefore with a view of buying the Yen and holding it. Entry will be in the 4HR chart with trend set in the weekly charts. I will consider setting a sell stop if the triggers in the 4HR chart are broken or entering right away and placing a stop loss within the 23.6%-38.2% Fibonacci levels from last week’s Hi-Lo.
Sell Stop: 145.60
Stop Loss: 147.00-above this week’s highs and trail your profits
Take Profit: ideally at 135-that is if this trade goes as plan but for swing traders hold it at 1:3 risk reward ratio. This places your Take Profit at 141.00.
Have a good trading day
NB: you only get paid if patience overcomes fear, don’t back off early if you have proper money management in place with a proper/reasonable stop loss set. Don’t chase trades.