Long the most popular carry trade in the market, high volatility in the GBP/JPY makes it an excellent medium-term range trade as well! Highly sensitive to interest rate outlook changes and change in the economy of the UK and Japan, the GBP/JPY can make powerful, sweeping moves.
Overall, the pair tends to trade in a range, especially when the UK interest rate outlook is neutral. Movements within these ranges are substantial. The RSI indicator and real support/resistance levels are two excellent ways for traders to identify entry and exit points at the tops and bottoms of these ranges.
With an average daily range of 172 pips, GBP/JPY offers plenty of
opportunitties for traders of all time frames, whether in the short,
medium or long-term!
What moves GBPJPY
- Shifts in UK interest rate outlook
Since this pair is saturated with carry trades, it is hypersensitive to any potential change in interest rates.
- Bank of Japan intervention
Hints that the BoJ will defend their currency from getting too strong will impact the price.
- UK and Japanese economic data
Changes in the strength of these economies relative to each other will have an effect on the price of their currency.
Fundamentals to Watch
- BoE Meeting
Policy statements from the Bank of England. Changes in interest rates will affect this pair since it is a carry trading pair.
- UK Unemployment
Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the UK.
- UK Retail Sales
Measure of the level of consumer interest in the UK. Consumer spending is one way to measure robustness and growth in the economy.
- UK Inflation
Inflation is closely watched since it can affect Bank of England interest rate policy.
- UK Housing Prices
The UK interest rate outlook is closely tied to how the housing market is doing; if growth is too little or too great it can affect monetary policy.
- Japanese Inflation
A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country.
- Japanese Consumer Spending
A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity.
- BoJ Monetary Policy Meeting
When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive.
- Japanese Trade Balance
Japanese imports vs. exports - the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.
- Japanese Industrial Production
A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.
- Tankan Survey
A quarterly business survey assessing Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades.