Mar.7 to Mar. 11, 2011 Weekly Winner: GBP/JPY!

Guess who’s back, guys! It ain’t Slim Shady, its GBP/JPY! The pair has come back to claim its position as Cyclopip’s Weekly Winner. We could’ve made mad pips on the setup this pair offered last week. But before I begin, let me remind all of y’all to check out my introductory post to refresh your memory on my trading framework.

Done? Great! Let’s get this show on the road!

March 7 to March 11, 2011: GBP/JPY Price Action Review

GBP/JPY chart

This week was a particularly lively one for GBP/JPY. It started off with bad news for BOE rate hike-hopefuls as it was announced that superhawk Andrew Sentance will be replaced by Ben Broadbent come June. With one less ultra-hawkish member to support rate hikes, the possibility of an interest rate increase in the near future dwindles as well.

Towards the middle of the week, the pair was able to recover a bit and consolidated as both the U.K. and Japan printed mixed results. Actually, we saw broad yen weakness midweek, which is why the pair was able to hover above the 134.00 handle a few times.

Towards the latter half of the week is when things started to get interesting. The BOE‘s refusal to raise rates wasn’t taken well by traders, and so the pound was sold off sharply in spite of an upgraded NIESR GDP estimate.

When news broke that Japan was rocked by an 8.9 magnitude earthquake, the pair exhibited quakes of its own. Volatility picked up, with the pair initially climbing higher on risk aversion. But eventually yen buying accelerated, pushing GBP/JPY waaay down. Apparently, many are expecting Japan to recall a significant amount of its capital to deal with the tragedy, and so this, together with expectations for large donations, spurred the yen upwards.

You can bet I felt like a fool for closing my GBP/JPY head and shoulders trade early! I could’ve made mad money with that since the pair fell well past my profit target.

The trade of the week would’ve been to get short right after the formation of the evening starpattern, at around 133.90. Price had been unable to make new highs midweek, and it was just stuck in a range. Catching the pair on its way down then, using an initial stop of 100 pips and adding to our position every 100 pips would’ve allowed us to open up to 6 positions. Assuming we had let the market stop us out, that would’ve translated to a 9:1 deal. Sweeeeet!

So you can see, it pays to always be ready. A 9:1 reward to risk ratio is pretty sweet. Even if you had risked a puny .25% on the trade, that would have resulted in pretty decent 2.25% gain on your account. Not bad for a few days’ work!

Now that the pair has broken the head and shoulders pattern that I pointed out, I’m gonna wait and see if I get an opportunity to short on a retest of the neckline around 133.00. Follow me on Twitter or at MeetPips.com to know what I plan to do! Peace out homies!