The head and shoulders pattern I pointed out last week on GBP/JPY finally saw a down break, so it’s time to hop in and see where the market takes me!
GBP/JPY Trade Setup
A lot of my fundamental analysis from my post on GBP/JPY last week continues to hold, including sentiment that the Bank of Japan is likely to sit on their hands on monetary policy for a while as their growth outlook remains positive for 2017, and to wait to see where the yen will go to next before making their next moves at their next policy meeting at the end of January.
And on the British pound side, “hard Brexit” fears hit Sterling like a hammer today after British Prime Minister Theresa May comments on how Britain would not be able to keep “bits” of its membership, which she later clarified as a situation that is not inevitable. The resulting pound selloff reaction sparked the downside break of the head and shoulders pattern in the four hour chart above, which I think could draw in more sellers in the short-term.
Looking forward, we don’t have much economic data from Japan until the next monetary policy meeting on January 30, so I think the yen is a good short-term match to keep selling some Sterling. And from the United Kingdom, we do have a steady stream of economic data for the next few weeks until the Bank of England meeting on February 2, but as long as the idea of a tough breakup between the UK and the EU lingers, I think sellers could outweigh the buyers even if UK data comes in positive. With that thought, I’ve decided to hop in the market, so here’s my plan:
Short GBP/JPY at market (141.30), stop loss at 145.30, profit target at 130.00 for a 2.9:1 return-on-risk. I’ll be risking 0.5% of my account on this position and if the market gets to that minor area of interest around 138.50, I’ll look to re-assess to potentially reduce my risk and maximize my gain.
As always, 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 simply follow what I do.
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