Higher inflation coupled with Theresa May’s inspiring speech in the UK Parliament ensured a rally in the Pound for the past two weeks. The Pound was also strengthened by a temporary weakness in the Greenback, triggered by a lack of liquidity during the holiday season and Trump’s comment about the strength of the US dollar.
There were no unexpected events that caused too much uncertainty in the past two weeks. This aided a weakness in the Yen, which is regarded as a safe-haven currency. The combination of events led the GBPJPY pair to a high of 144.76 last Friday. However, profit-booking has brought the cross to about 141.50 yesterday. We anticipate the pair to decline further on the basis of the developments discussed below.
Yesterday, the lending data reported by the Bank of England indicated that the credit supply in the UK increased £1.039 billion in December. However, it was well below £1.7 billion anticipated by analysts. Pessimists argue that the decline in the demand for credit indicates the weariness of British consumers who have been holding the economy upright until now.
The argument is also justified by the soft retail spending in December. Even though it is quite premature to confirm a slowdown of the UK economy, still, it can be understood that investors would stay cautious before adding long positions to the Pound.
Analysts at TD Securities also believe that there exists a negligible chance of a rate hike or cut in the UK benchmark rate. The argument stems from the fact that the rising inflation offsets the less dovish monetary policy of the government.
Yesterday, during the monetary policy meeting, the Bank of Japan left the interest rates unchanged at -0.10%. The BoJ, however, provided an optimistic view of the economy. Furthermore, the central bank stated that it expects a small rise in consumer prices. More importantly, the BoJ announced that it has no target rate for the Yen. The report is expected to assist the Yen in gaining ground against the Pound in the days ahead.
The price chart reveals that the GBPJPY pair has failed to cross the resistance at 144.20. Furthermore, the selling pressure ensured that the level of 142.05 was broken as well. The currency pair is now expected to decline further and test the next minor support at 139.50. The argument is also justified by the decline of the stochastic oscillator.
So, a Forex trader can go short in the GBPJPY pair near 142.50 to benefit from the predicted downtrend. To reduce losses from unexpected reversals, a stop-loss order can be placed above 143.20. The short position can be covered near 139.50.
Likewise, a binary trading platform of any reputed broker can be used to purchase a put option contract to realize formidable returns from the probable downtrend of the GBPJPY pair. An investment should be made in the trade only after making sure that the GBPJPY pair is not trading below 142.30. The contract should preferably expire on February 10th.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
