The Bank of Japan and Bank of England will share their latest monetary policy statements very soon, which could bring volatility and new opportunities to play the current downtrend.
Downtrend Bounce in GBP/JPY
GBP/JPY bears have enjoyed a downtrend since the beginning of May this year, moving from roughly 148.00 to its current trading levels just under the 137.00 handle (about 7% – 8% move). It’s been trading around this area for the last couple of weeks, but with the latest monetary policy statements from both the Bank of Japan and Bank of England coming very soon, GBP/JPY could break one way or another by the next session or two, depending on both events.
Given the Brexit saga that will continue on at least until October, and coupled with the global trade issues brewing between the U.S. and its trading partners around the world, it’s likely the BOE will not hike interest rates given these risks still exist to potentially do damage to the economy later on. And it’s possible they may even shift rhetoric to a path of lower interest rates, which would probably lead traders to take Sterling lower on the day as this is not the current leading expectation at the moment.
As for the BOJ, they’ll likely cite the same global trade risks as potentially damaging to their economy, and with the Federal Reserve perceived to cut rates later this year despite holding today, odds are favorable that we’ll hear the need for policy stimulus from the BOJ a little bit later. I’m not sure that if this scenario played out, we would see the Japanese yen sell off given its safe haven status among traders, so for now I don’t think we’ll see an extend move lower in yen this week.
With all of that said, the scenario I’m watching out for is GBP/JPY bounce higher during the Asia session around the BOJ meeting. If the pair holds and the BOJ doesn’t announce a major stimulative move, I’ll then watch the Bank of England’s statement for dovish rhetoric and a bearish reaction to jump in short GBP/JPY after the BOE event. If this series of events plays out this way, I’ll post up my trade idea by the end of the U.S. session.
What do you guys think? Let me know in the comments section below!
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