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With all the top-tier reports lined up from the U.K. economy this week, the pound might have a chance to bounce as the focus returns to improving fundamentals.

Long GBP/JPY Idea

I’ve had my one good eye locked on this classic break-and-retest setup for more than a month already but had second thoughts about hopping in a long position when the area of interest was tested.

With the spotlight back on Brexit around that time, I figured it would make more sense to wait for a bit more bullish confirmation before going long. I did spot a tiny double bottom pattern earlier this week, so I’m placing my buy stop orders past the neckline and 149.00 mark.

GBP/JPY 4-hour Forex Chart
GBP/JPY 4-hour Forex Chart

As for my stop, I’m setting it below the area of interest and 147.00 major psychological level. I’ll aim for the swing high just below the 153.00 mark as my profit target.

Even with all the hoopla surrounding Brexit, I’m keeping a bullish pound bias because of the increasing likelihood that the BOE might tighten monetary policy on account of rising inflation. The upcoming CPI release could show another gain from 2.9% to 3.0% for the headline figure.

BOE head honcho Carney also has a speech scheduled later on this week and he might once again emphasize how Brexit could actually lead to a tighter jobs market, which would then lift wages and overall inflation. Now the BOE might need to rein some of those price pressures in before these take a larger toll on consumer spending and growth.

As for the Japanese yen, I’m thinking that politics could also come into play as a landslide victory for PM Abe in the snap elections might be seen as a vote in favor of ultra-easy monetary policy.

Still, I can’t help but worry that geopolitical risks stemming from North Korea and Iran might drive up demand for the lower-yielding currency.

Here’s what I have:

Long GBP/JPY at 149.35, stop loss at 146.75, profit target at 152.75 for a potential 1.3-to-1 R:R at 0.5% risk.

 

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