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By: Mike P. Kulej
On the heels of massive Yen rally in summer 2007, later named by main stream press the "unwind of the carry trade",we published an article about anticipated direction of GBP-JPY. For details please see previous writing "Trading Forex- GBP-JPY outlook". The future outlined there have come to fruition and it's time to take a look next possible moves for this cross. Comparing to other popular currency pairs, GBP-JPY is relatively illiquid. This is reflected in its wide spread of 7-8 pips on most popular trading platforms. It does not compare favorably with EUR-USD 2 pips, USD-JPY 2-3 pips or even GBP-USD 3-4 pips with most brokers. It is, however, significantly less than 10-15 pips just few years ago.
Despite these limitations, GBP-JPY remains one of preferred crosses for speculators. One of the reasons is large daily trading range. Moves over 200-300 pips seem to be the norm and 500 + pips daily fluctuations certainly don't raise anyone's eyebrows. And let's not forget the 1000 pips day last summer. On top of that, in the current environment of relatively strong Yen, those pips have high value. There is potential for large gains, and losses, on daily bases. Speculative popularity of this pair certainly is not going to dwindle any time soon.
As of this writing GBP-JPY is at about 207.00 level, after bouncing from 192.50, the low of most recent sell off. For the time being a slow upward movement is expected, reaching maybe as high as 215.00 over next few months, or sometimes this summer. Once that is completed, one more leg down should finish longer term bearish move. Previous swings suggest a target of 185.00 or so. Chart development suggest a steady, measured price movement, rather than the kind of violent swings from last summer or even earlier this year. It's reasonable to place this "anticipated low" very late this year or beginning of 2009. After that a very strong, and prolonged, bull market should resume.
This particular scenario is dictated more by very long term charts and fundamentals pertaining to GBP. Yen is notoriously more unpredictable. That is true to both technical as well as fundamental analysis of Japanese currency. Of course, any large scale, unexpected events can farther complicate this outlook.
No matter what happens, GBP-JPY is sure to remain one of the favorite speculative instruments the world over. Even if one trades it only on daily bases, it doesn't hurt to have some long term possible scenarios mapped out.
About the author:
Mike P.Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on www.spectrumforex.com . Spectrum Forex LLC offers numerous services to individual traders. With questions and comments e-mail him at kulej@spectrumforex.com.
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Sunday, February 14, 2010
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