What To Consider When Trading The GBP/JPY Pair?

Strengthening Yen Hits the GBP/JPY Pair Hard…

The GBP/JPY currency pair is trading at 156.2565, up 1.10% for the day on Monday, 9 May 2016. For the year to date, the currency pair has shed 11.86%, as evidenced by the strong gains made by the Japanese yen. Bank of Japan policy, vis-à-vis Abenomics has resulted in a rapidly appreciating Japanese yen and a poorly performing Nikkei 225 index. The Japanese stock market has reversed direction, owing to the pressures being brought to bear on the export potential of Japanese companies with a strong yen. The sharp appreciation of the yen is evident in the above chart, where it dropped from a 52-week high of 195.8851 in December 2015 to a 52-week low of 151.6828 in April 2016.

This currency pair is often termed the ‘Dragon’, owing to its high volatility in price movement. This is especially true when compared to other currency pairs which do not show nearly as much movement on a day-to-day basis. Because of these wild fluctuations in relative pricing between the British pound and the Japanese yen, traders stand to gain or lose substantial sums of money. Granted, there has been a smidgen of stabilization taking place in March and early April 2016, with the currency pair trading in a tight range between 159 and 163 for the most part. Late April and May have seen the JPY appreciating strongly against the GBP with a sharp drop from the 162.5 handle all the way down to the 155 support level. Consider for a moment that this currency pair shed 7,000 pips at the height of the financial crisis back in 2008.

That having been said, the volatility of this pair is not restricted to the 2008 global financial crisis – it is an ongoing phenomenon. Volatility is ideal for currency traders in that it presents highly profitable opportunities. The GBP/JPY pair does not offer smooth movement in any direction – that is why it is imperative to understand the factors that drive the GBP higher against the yen or vice versa. Traders typically use stop loss orders with this pair as a result of its volatility. One of the best strategies to employ with this pair is identifying support and resistance levels, and based on the current trends they appear to be holding around the 163 resistance level and the 155 support level. Of course there are R1, R2 and R3 resistance levels and S3, S2 an S1 support levels to consider when technical trading specs are factored in. While this currency pair can move significantly in terms of pips, the downside risk is ever present and careful management of your trading activity with the pair is essential.