Week 4 Oct 2015: GBPJPY Long
Updated
Hacking the Fundamentals
While the USD rallied last week and the EUR crashed due to Draghi's threateningly dovish statement, the GBP remains a fundamentally strong currency as UK shows the most modest recovery among the western powers. The strength of the USD is not a welcome development for the Fed as data from the US shows that their recovery is not quite on track. Nobody expects the Fed to raise rates on Oct 28, and there is a huge possibility that they will release an extremely dovish statement, more likely about delaying the increase further. This should weaken the USD at least for the short term as the market reacts to their statement. With USD weakening, next in line is the GBP. I expect the GBP to rally on the USD's weakness.
JPY rallied recently when Japan PM adviser Honda stated that there is no need for additional easing by the BoJ at this stage. This should be a temporary strength as it is still in BOJ's best interest to keep the Yen weak. So I expect the Yen to get weaker again even after the USD crashes on the aftermath of the FOMC statement.
Hacking the Technicals
Cable shows a slow bearish trend for the past 2 weeks which could end at 1.5300. It could go as low as 1.5250 but not lower as there sits some significant demand on that area.
As for the Yen, it is still in a range but the floor could have shifted to 120.000. While it could still touch 119.500 specially as a reaction to FOMC, that area could prove to be a strong Support that could propel the Yen back to 121.500.
Trading the GBPJPY
Due to GBP's expected strength and JPY's expected weakness, the pair that could post the most rewarding move is the GBPJPY. I have identified 183.500 as the best entry should the USD mount one last rally before crashing after the FOMC statement. First target would be at 184.500 and next target is at 185.500.
But if price stays within 184.000 area prior to the FOMC, I will be looking at the 15 min chart to hunt for a good long entry with the initial target at 185.500 and next target at 186.500.
While the USD rallied last week and the EUR crashed due to Draghi's threateningly dovish statement, the GBP remains a fundamentally strong currency as UK shows the most modest recovery among the western powers. The strength of the USD is not a welcome development for the Fed as data from the US shows that their recovery is not quite on track. Nobody expects the Fed to raise rates on Oct 28, and there is a huge possibility that they will release an extremely dovish statement, more likely about delaying the increase further. This should weaken the USD at least for the short term as the market reacts to their statement. With USD weakening, next in line is the GBP. I expect the GBP to rally on the USD's weakness.
JPY rallied recently when Japan PM adviser Honda stated that there is no need for additional easing by the BoJ at this stage. This should be a temporary strength as it is still in BOJ's best interest to keep the Yen weak. So I expect the Yen to get weaker again even after the USD crashes on the aftermath of the FOMC statement.
Hacking the Technicals
Cable shows a slow bearish trend for the past 2 weeks which could end at 1.5300. It could go as low as 1.5250 but not lower as there sits some significant demand on that area.
As for the Yen, it is still in a range but the floor could have shifted to 120.000. While it could still touch 119.500 specially as a reaction to FOMC, that area could prove to be a strong Support that could propel the Yen back to 121.500.
Trading the GBPJPY
Due to GBP's expected strength and JPY's expected weakness, the pair that could post the most rewarding move is the GBPJPY. I have identified 183.500 as the best entry should the USD mount one last rally before crashing after the FOMC statement. First target would be at 184.500 and next target is at 185.500.
But if price stays within 184.000 area prior to the FOMC, I will be looking at the 15 min chart to hunt for a good long entry with the initial target at 185.500 and next target at 186.500.
Note
Market does not seem to attempt to go lower to reach our ideal entry. GBPJPY was launched at 184.00 so this next best entry was missed too. Hoping to see some pull backs prior to FOMC for a better long entry.Order cancelled
This setup is now not likely to unfold. There is a new scenario and a new entry, while the fundamentals haven't changed.Read the new analysis here:
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