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Checking out Sterling this week ahead of U.K. data and a speech from new Bank of England Governor Andrew Bailey.

Specifically, I’m eyeing GBP/JPY this week as the pair is currently in bounce mode and nearly testing a strong area of interest.

GBP/JPY Short Play

GBP/JPY 4-Hour Forex Chart
GBP/JPY 4-Hour Forex Chart

For this week’s idea, I’m leaning negative on Sterling, going with the market sentiment we saw last week as bad U.K. data and Brexit uncertainties weighed on the pound.

We may see more of the same this week with upcoming preliminary first quarter U.K. GDP, manufacturing production data, and possibly dovish commentary from BOE Governor Bailey later this week.

I’m playing Sterling against the Japanese yen, which doesn’t look to have major catalysts coming from Japan, so it’s likely it’ll move on global risk sentiment. With concerns of a second wave growing as economies around the world open back up from lockdown (New COVID-19 infections in China, South Korea raise alarm over second wave, Germany infection rate rises as lockdown eases), traders may start to lean risk-off this week if that story continues to gain traction. This is likely to benefit the Japanese yen if that scenario plays out.

With that in mind, I’m looking to take a short position in GBP/JPY for a swing trade ( 1 – 3 week hold time), but I’m going to be a bit conservative with my entry given the pair is on the upswing at the moment. I’m setting my orders around the strong area of interest on the four hour chart above, marked by the descending trendline and previous consolidation patterns around 132.50 and 134.00.

I’ll use the weekly ATR of around 335 pips as my stop guide, and my target, and the March lows as my max target.  Here’s what I’m doing:

Short half position GBP/JPY at 133.50, max stop at 136.25 with 0.50% risk, max target at 125.00

I’m only risking 0.50% of my account on this trade, and I’ve got a potential return-on-risk of around 3.09:1. I will look to add to this position if the price moves my way if there is bearish momentum and the scenarios described above continue, as well as cut the trade early if the events do not go my way.

If my orders aren’t triggered by the end of the week, then I’ll look to close them down before the close on Friday.

What do you guys think? Are you watching GBP/JPY for a potential short position as well? Let me know in the comments section below!

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