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A good Monday to all you pipsters out there! Let’s start the week off with another awesome setup on GBP/JPY!

GBP/JPY has managed to grab my attention for the third week in a row now. Darn it guppy, at this rate, people are gonna think I only have eye(s) for you!

Again, if you’re new here, you might want to check out my introduction to Cyclopip’s Weekly Winner to familiarize yourself with my framework.

February 21 to February 25, 2011: GBP/JPY Price Action Review

GBP/JPY chart

My eye wasn’t the only one watching the pound last week week. I’m sure a lot of eyes were on it since the U.K. had heavy news in store for traders.

Surprisingly, the pair started the week off inching lower, in spite of positive feedback from the Rightmove HPI and public sector net borrowing reports.

This was probably due to the fact that the yen got a little bit of help from the bout of risk aversion that struck the markets. Civil unrest in Libya had worrywarts flowing back into the safe haven arms of the yen.

Late Tuesday night, the pair dipped below the lower WATR, but was able to bounce back a bit ahead of the release of the MPC meeting minutes. One interesting thing to note about the minutes was that while another MPC member decided to vote for a rate hike, it was Spencer Dale and not BOE Vice Governor Charles Bean.

My bookies were saying that they had expected Bean to be the one to vote for a rate hike. Nevertheless, the end result was the same–while guppy did spike a little higher following the release of the minutes, the move was not sustained and the pair just headed lower for the rest of the week amid weak realized sales and GDP data.

Now to discuss the setup of the week!

It took place on Wednesday, when the pair retraced after testing the lower WATR. We saw a gravestone doji form, followed by a bearish marubozu candle. You could even say it was an evening star pattern. In addition, the 134.50 level lined up well with the intraweek 61.8% Fib level, and Stochastic was also overbought, giving a valid short signal.

Going short at 134.30, just after the close of the bearish marubozu, using a 50/1/1 STA and letting the market stop you out would have allowed you to catch almost the entire move. You would’ve exited somewhere around 131.70 for a solid 9:1 win. Not bad for a week’s worth of trading don’t you think?

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