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Sterling ain’t looking back from its rallies these days so I decided to hop in with a long position at market to catch GBP/JPY’s climb. Think I made the right decision?

Long GBP/JPY Idea

Economic reports from the U.K. all turned out stronger than expected this week, with the PMI readings from business sectors reflecting a pickup in expansion. In particular, the services PMI surprised with a jump from 55.0 to 55.8 instead of falling to 54.6 yesterday so I’m thinking there’s more upside for Guppy from here.

With that, I went long at market (145.30) and set my stop at roughly twice as much as the pair’s daily ATR. This should give me a potential 1:1 return-on-risk since I’m aiming for the December 2016 highs at 148.00.

GBP/JPY 4-hour Forex Chart
GBP/JPY 4-hour Forex Chart

I’m expecting more yen weakness because the wheels seem to be turning in the U.S. in terms of healthcare and tax reform. Well, at least that’s what the Donald is saying! If the Trump administration continues to make progress in its fiscal policy agenda, U.S. bond yields could stage another strong rally, drawing traders towards the dollar and away from the yen.

Another factor that could spur dollar demand (and therefore yen weakness) is the upcoming NFP release. Most leading indicators are hinting at a potentially strong pickup in hiring, which would support market expectations for Fed rate hikes this year. Keep in mind that the FOMC retained their upbeat economic outlook during their latest statement so the tightening timeline is still in place.

Of course Brexit concerns are always something I need to keep close tabs on, as headlines suggesting that the EU would make things difficult for the U.K. might eventually dampen the pound’s gains. I’ll keep you posted if I make any adjustments but for now, here’s what I have:

Long GBP/JPY at market (145.30), stop loss at 142.75, profit target at 147.75 for a potential 1:1 trade. I’ve risked 0.5% of my account on this setup.

As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.

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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.