The GBP/JPY is a central currency pair and one of the most heavily traded in the forex market. The two currencies involved, the British pound and Japanese yen, are both considered safe-haven currencies and are known to be highly volatile. As a result, traders often look to capitalise on these movements using technical analysis tools such as chart patterns or indicators like moving averages (MA) or relative strength index (RSI).
This article will explore the history of this pair, its current trends and how you can use technical analysis to spot trading opportunities in the future.
History of GBP/JPY
The GBP/JPY forex pair was first introduced in 1985 when Japan changed its exchange rate system to allow for more flexibility. Since then, the pair has seen a lot of fluctuations due to global political and economic events.
GBP/JPY has become increasingly volatile in the past decade as both economies have undergone significant changes, such as Brexit and the economic stimulus from Japan’s central bank (Bank of Japan). The GBP/JPY also closely follows the Bank of England’s interest rate decisions, which can significantly impact the value of both currencies.
Current and future trends in GBP/JPY
GBP/JPY has been trading at around 137.00, ranging between 135.50 and 138.00 over the last month. In general, this pair tends to move in tandem with other major currencies, such as EUR/USD and USD/JPY, suggesting that investors treat it like a safe-haven currency similar to gold. Recently, GBP/JPY has decreased due to Brexit-related uncertainty and a weaker pound.
The future of GBP/JPY largely depends on the outcome of Brexit and how it will affect both economies. If a trade deal is reached between the UK and EU, this could result in an appreciation of the pound, leading to an increase in GBP/JPY. On the other hand, if the Brexit process continues to be bogged down by political wrangling, this could cause further pound depreciation against other currencies, pushing GBP/JPY lower.
Technical analysis of GBP/JPY
When trading the GBP/JPY currency pair, technical analysis is one of the most effective tools available. Technical analysis involves looking at past price movements and using chart patterns or indicators such as moving averages (MA) and relative strength index (RSI) to identify potential trading opportunities in the future.
Here are some of the most commonly used techniques for analysing this pair:
Moving averages: Traders often use moving averages (MA) such as the 50-day simple MA or 200-day exponential MA to identify potential support/resistance levels.
Chart patterns: Many traders also look for chart patterns such as head and shoulders, double-tops/bottoms, or triangles to determine potential entry and exit points.
Oscillators: Other indicators like the relative strength index (RSI) help identify overbought/oversold conditions.
How to trade GBP/JPY
When trading GBP/JPY, the current political and economic environment must be kept in mind. As with any currency pair, fundamental analysis should always be used with technical analysis when making trading decisions.
Traders should also remember to use risk management strategies such as limiting their leverage or using stop-loss orders. Finally, traders should always backtest any trading strategies to ensure they are suitable for their particular needs.
At the end of the day
The GBP/JPY currency pair is one of the most heavily traded in the forex market and offers many opportunities for those who understand technical analysis. With moving averages, chart patterns, and oscillators such as RSI, traders can identify potential trading opportunities in this pair. However, it’s important to remember that no strategy is foolproof and that proper risk management should always be employed when trading any currency pair.
These are just some basic concepts in trading GBP/JPY, but they should be a starting point for developing an effective strategy. As always, traders should continue to refine their skills by using demo accounts or backtesting before investing real money in the market. Whether you’re looking for short-term opportunities or long-term investments, understanding how to trade this pair will help you increase your chances of achieving your financial goals.