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Hopping on a small short position in GBP/JPY ahead of what could be bearish catalysts from the U.K.

Short-term Resistance on GBP/JPY?

GBP/JPY 1-Hour Forex Chart
GBP/JPY 1-Hour Forex Chart

I’ve been looking to short Sterling for a long time now to play the Brexit drama, but could never get a large enough pullback (if any) to short at a better price. Well, we finally saw a spike higher in GBP/JPY that allows me to play the downtrend, albeit more for a shorter-term play given the small bounce…at least to start.

The spike higher came on a spike towards positive global risk sentiment after the U.S. announced that some items from the China tariff list will be removed & delaying tariffs for others, pushing Guppy to retest a broken support level around 128.25. I don’t know if this is a medium-term sentiment changer,  but it doesn’t feel like the markets are really convinced the U.S.-China trade war took a solid turn towards a deal. With that said, I think this could be an area that draws in technical sellers, and looking forward, Sterling could feel pressure with the upcoming U.K. CPI and retail sales data this week. The CPI is expected to tick slightly higher while retail sales is expected to disappoint relative to the previous read.

With that outlook, I’m looking to build a very small short-term short play, starting at the current market prices and looking for another sell at the next resistance area below 129.80. My max stop is above the recent swing highs just above 130.00, and my max target will be the recent swing lows for an attractive potential return-on-risk. Here’s what I’m doing:

Short quarter position GBP/JPY at market (128.61), max stop at 130.25 max target at 127.00 with 0.25% risk

Short quarter position GBP/JPY at 129.50, max stop at 130.25 max target at 127.00 with 0.25% risk

I’ll be risking 0.50% of my account if all positions are triggered, and my potential return-on-risk is about 2:1.  But I may add to the position if it does go my way and adjust the exits, all depending on the data and the geopolitical environment and news updates.

Stay tuned for updates and 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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