I’m picking the Japanese yen to play the same long Sterling bias I had in my short EUR/GBP trade after their monetary policy statement meeting today. While there wasn’t any changes made to policy, there were a few tidbits of change in the rhetoric: mainly the the lowering of real growth forecasts. Also, there is still concern that the April tax hikes in Japan may have a negative effect on the Japanese economy.
Technically, Guppy was consolidating over the latter half of last week, and thanks to a combination of recent positive U.K. data and today’s BOJ news, we’re seeing a break higher out of that price action tightening–forex traders are still loving the pound! Now, with the stochastic indicating overbought conditions as the market tests the minor resistance area around 173.00, I’m looking for an ever-so-slight pullback to that round number before jumping in long in this pair. I’m going with a wide stop, using a percentage of the weekly ATR, with a massive target because of the fundamentals and trend. Here’s what I am doing:
Long half position GBP/JPY 173.00, stop 171.00, profit target 190.00
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 8.5:1. Of course, anything can happen in the forex markets, so if the story changes and/or I’m completely wrong, I’ll be sure to reassess and adjust quickly if necessary.