Speculation is starting to rise on when we’ll get a rate cut from the Bank of England, prompting me to check out the price action in GBP/JPY.
GBP/JPY Short Play
Word on the street is that the Bank of England might be making moves soon to follow the stimulative actions from other major central banks recently. There’s even talk that action may be taken as soon as this week, far ahead from the next scheduled BOE meeting on March 26th. As always, we won’t know if a surprise rate cut comes until it does, but given what we saw from the Fed and BOC (0.50% interest rate cuts) last week, I’m going to take action now for what could be pressure coming soon for Sterling.
So, I’m looking to short the British pound and I’m looking to do it against the Japanese yen, which I think will likely continue to find buyers for now as coronavirus fears aren’t likely to go away any time soon. Also, GBP/JPY is a highly volatile pair, so not only could I possibly get in at a great price, but I think the potential gains could come fast if everything goes my way.
On the one hour chart above of GBP/JPY, we can see the pair is bouncing higher once against from the strong support area around 134.00. If the pair makes it up to the broken support area, I’ll look to short Sterling there as the odds are pretty good traders will be watching that area for another opportunity to short. My stop will be wide given the huge pick up in volatility, and my target will be the recent swing lows for what is a pretty strong potential return-on-risk. Here’s what I’m going to do:
Short full position GBP/JPY at 136.95, max stop at 138.75 with 1.00% max risk, max target at 133.05
I’ll be risking 1.00% of my account with a max potential 2.16:1 return-on-risk. If triggered, I will look to cancel early if the risk environment shifts positive strongly, and I will look to add to the position if it does go my way and the argument for Sterling weakness and/or yen strength grows. If my open orders do not trigger by the end of the week, I will close them down to reassess the idea over the weekend.
That’s it for now. 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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