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GBP/JPY has been on a slow grind in the last month after breaking the 2014 highs. Will a pullback to those highs draw in more buyers to play the forex trend higher?

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

My main man Forex Gump pointed out a slew of U.K. economic events to play this week, which is the main reason why I’m checking out Guppy–economic catalysts means movement, which is what forex traders need to make money.  On the other side of the pair is the Japanese yen, which could also see a broad spike in volatility with the Bank of Japan releasing their latest monetary policy decision at the end of the week.

Of course, we won’t know what the results of the data or policy decisions will be nor how the market will react, but I think if Guppy takes a hit on this week’s news, it’s an opportunity to play the longer-term, monetary policy divergence between the Bank of England (possibly looking to raise rates in 2016) and the Bank of Japan (likely to keep massive stimulus efforts going for the foreseeable future).

If the market does drop and we don’t any sentiment shifting developments from either the BOE or BOJ, I’ll look at scaling into a long position at the previous consolidation/support area that drew in buyers earlier in the month. This area also happens the 2014 high, and now that it’s broken, it sets up a potential “resistance-turned-support” scenario.  My stop will be a wide one, using the weekly ATR as my breathing room.  And I’m leaving my target pretty open since we’re seeing levels not seen since the 2008 Financial Crisis, but I’ll definitely look to re-assess and adjust if the market moves in my direction as much as my max risk.  Here’s what I am doing:

Long half position GBP/JPY at 190.00, max stop at 187.00, initial target at 192.00

Long half position GBP/JPY at 189.00, max stop at 187.00, initial target at 192.00

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have an initial reward-to-risk ratio of about 1.26:1, but I’ll look to maximize my gains if the market goes my way. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.