This morning, we watched Cable get a beat down as traders sold off their long GBP positions when BoE Governer King suggested that the rate hikes may end and that news came out that the vote for a January rate hike was only 5-4 in favor. I think this may be an over reaction by traders and see this as an opportunity to jump back long into this pair at a great price. Here are a few things to consider:
1. While there were 4 votes against the rate hike in January, those voters were concerned on timing and wanted to wait for next months’ inflation data before making a decision. They didn’t vote for a rate hike because they thought inflation was easing or that the UK economy was slowing.
2. UK quarterly GDP came out at 0.8% versus the forecast number of 0.7% showing that the UK may produce some of the best growth amongst the worlds biggest economies.
3. Regardless if the Bank of England raises rates or not, the interest rate differential between the Sterling and the Yen is still an attractive 5.0% difference.
So, I like a long play in GBP/JPY, but with the strong run up in Cable and recent news, it looks like there will be profit taking for the time being. We will look to jump in long near the 50% Fib retracement line at at 235.00 – which also happens to be a previous resistance level on the daily chart.
Long GBP/JPY at 235.00, stop at 233.50, pt1 at 236.50, pt2 at 241.00
Remember to never risk more that 1% of your account on any single trade, so please adjust your position sizes accordingly.
This is a longer term trade, so check back for updates and trade adjustments. Good luck and good trading!