The GBP/JPY forex trading, also known as the Beast, Dragon, or Greppy, made thousands of individuals all over the world to start day trading over their computers every day. This post includes the facts about GBP/JPY from the currency pair’s history, as well as the benefits and risks, including volatility and liquidity. The strategies in enhancing your trading performance are also added.
What Is GBP/JPY?
Table of Contents
- 1 What Is GBP/JPY?
- 2 Reasons To Trade With GBP/JPY
- 3 The Risks And Drawbacks Of GBP/JPY
- 4 Influences Of Movement
- 5 Currency Correlations
- 6 Calculation
- 7 Day Trading Strategy For GBP/JPY
- 8 History
- 9 The Role Of Great British Pound
- 10 The Role Of Japanese Yen
- 11 Final Word
To deeply understand the meaning of GBP/JPY, we have to define it quite simple. GBP/JPY means a relative value of the British pound against the value of the Japanese Yen. Both of the currency pair is among the top eight global currencies. The pound represents around 13% of forex volume, while 20% of trading volume is after yen accounts.
GBP/JPY is a ‘cross’ pair that means calculating the exchange rate. The US dollar is of no use.
Before GBP/JPY, investment is to fully understand the pair’s fundamentals in which results in a better position to build future price forecasts.
Reasons To Trade With GBP/JPY
ETFs, futures, and options are just some of the currency pair’s trading vehicles you can take advantage of. Here are other reasons why you should trade with GBP/JPY:
- Nature Of The Pair – Pounds has been used in carrying trades since it has stable high-interest rates. While the yen became the funding currency carry trades significantly in good time. Those brought up a crowded market, which can be hit by a financial crisis as well. Higher volatility and numbers of forex trading opportunities became accessible through the currency pair’s nature.
- Volatility – Opportunities in generating profit result from the pair’s volatility. Only a few of the other currencies can offer volatility as GBP/JPY does, which hail from its high pip value. In the late 2000s, up to 15000 pip change has occurred in just five years.
- Availability Of Resources – Today’s trading is a lot easier than before in some measure. Traders now have direct access to graphs, helpful indicators, and even charts. Those resources make Elliot wave analysis more convenient. Your knowledge in rich trading communities is increased in the form of forums and other resources, such as trading analysis blogs.
- Risk Tracking – GBP/JPY currency pair works best in stocks and commodities. The rising of stocks and commodities while bonds fall is an excellent sign of a growing world economy. Traders who have the appetite and aversion to taking a risk in utilizing macro-economic sentiment can bring profit from market dynamics.
The Risks And Drawbacks Of GBP/JPY
Do not be blinded by its numerous benefits as risks and drawbacks are always present to keep in mind. Here are the major downfalls of GBP/JPY:
- Experienced Required – Novice traders must be aware of many factors and not just be attracted by the promise of pips. One reason to be on guard is because of volatile moves in a consolidation phase. It turned traders with limited capital and untested risk management strategy to be better off with other pairs first.
- Volatility – Surely, you have read ‘volatility’ as one of the advantages of GBP/JPY forex trading. Since GBP/JPY is one of the most volatile currency pairs, it could result in danger, as well. The frequent occurrence of false signals takes along rapid money losses and other painful lessons for the traders. It is named a ‘widow maker’ for a reason.
- Amplified Losses – Daily trends and daily range can be strong in day trading with GBP/JPY pairs, which brings up a more significant loss. Setting a wider stop-losses day after day would make the situation worse.
- Automated Competition – Stating an edge in a trading market became more challenging than before. Up until it turns out to be elusive on how to trade successfully. Success in trading requires more than knowing the historical charts, average daily ranges, and forecast analysis. As well as the best indicators for the pair may not be enough.
Influences Of Movement
Many factors affect trading transactions with GBP/JPY, which include the following:
Knowing the current price and news analysis on the GBP/JPY pair are not the priority here. Understanding the forces that drive movement in the currency pair must undergo first.
There is a significant impact between the Japanese yen and energy pricing with this currency pair. Japan is known for its massive importation of crude oil and natural gas in satisfying the domestic energy requirements. The country became the 4th and 2nd most prominent importer of crude oil and natural gas, in that order.
Japanese yen and energy commodities’ prices have a secure link after that. The movement of global energy prices proportionately affects the price of Japanese yen agreeing to the historical data. These greatly influence the GBP/JPY currency pair.
Several factors other than the prior can influence the link between the currency pair, such as:
- Indices – The success of stock market indexes can strengthen or weaken currencies. For example, when the UK’s FTSE 100 and Japan’s Nikkei 225 stock market index are in success, it can lead to currencies strengthening and weakening.
- Bonds – Debt securities issued by the BoE (Gilt) and Japan Generic Government 10Y Yield (GJGB10) will also have influences upon highly volatile pairs.
- Currencies – GBP/JPY pairing involves the impact of the US dollar and euro, in particular. Currency pairs move in the line of other currencies, but not independently. Correlation is the reason why it happens that way, which is to be discussed later.
- Governments –The 2016 Brexit referendum is one of the significant political elections and decisions that influence the strength of the said currencies.
- Bank of England (BoE) – It is a central bank and lender responsible for the monetary policy and interest rates. The statement of HaresgMenghani last 2017 sums up as not tolerating inflation while considering economic shutdowns in setting up interest rates and other programs.
- Bank of Japan (BoJ) – Over the years, BoJ applies extremely low-interest rates. It renders the impact of the Japanese yen against the British pound. The day traders must observe the Consumer Price Index or CPI is a key sign of JPY-related currency crosses.
Wars and natural disasters can be added as one of the influences on the GBP/JPY currency pair movement. Therefore, focusing on Yahoo charts and historical data is not enough for savvy day traders. Global factors are a great addition to the range of sources traders can depend on.
All foreign exchange currencies cannot move independently. They come in pairs and so the movement of one pair is tied up to the other couple. Expert advisors themselves may not bring currency correlation without your help.
Trading GBP/JPY is to be expected as a derivative of GBP/USD and USD/JPY pairs. Therefore, GBP/JPY could relate to either or both of the currency pairs. It creates a problem wherein pairs can move in the opposite direction and the same manner as the other pair. Further, correlations are not constant anyways.
There are two terms you need to understand about correlation, including the positive and negative correlation. Read on for a further explanation.
- Positive Correlation – It is when currency pairs move in line with each other; examples are GBP/USD, AUD/USD, and EUR/USD. The reason is any change on the counter currency, which is the US dollar, will have an impact on all pairs.
- Negative Correlation – It is when pairs move in another way around, such as USD/CHF, USD/JPY, and USD/CAD. US dollar is now the base currency that results in such.
The statistical measure of correlation ranges from -1 to +1, wherein the prior states moving in the opposite direction as contrary to the later. Use an Excel spreadsheet to calculate the correlation of the pairs. Having an idea of this data is of your benefit in having a daily outlook on forex and accurate forecasting.
Day Trading Strategy For GBP/JPY
Below are the strategies you might use in enhancing your day trading performance with GBP/JOY:
The best time to trade GBP/JPY is during the key economic releases around 01:30, 02:00, 08:30, and 10:00 EST. Or, keep an eye on Asian European Overlap from 00:00 to 03:00 EST, which sometimes overlap with London. Within those periods, the Japanese yen is the most liquid while European yen crosses.
Cutting your trade size into a third of your normal trade size is considered to set stop losses wide. You can aim for higher targets by reducing potential damages in a volatile currency pair.
Trading breakouts might be an appealing technique through the volatility of the GBP/JPY pair. Trade wide swings movement can tell whether you are minimizing losses or capitalizing profits.
Regularly monitor your support and resistance lines and levels to make this strategy in effect. Without doing so, the pair’s volatility fluctuates in a short time that can affect your trading performance.
The 20 Pips GBP/JPY Scalping
This strategy requires the use of a 5-minutes timeframe, free GBP/JPY signals, and EMAs or the 25 exponential moving averages. Price above 25 EMA pertains to an uptrend while a downtrend is for prices below the said range. Another consideration is the trend’s angle in which angles around 30-degrees or higher means a solid trend on while a ranging market shows a horizontal angle. Do not tend to trade when there is a flat EMA angle.
Daily GBP/JPY range is from 150-200 pips that bring abundant scalping opportunities. Be warned for this system may fail on ranging non-trending markets.
To summarize, the said strategies may or may not work for every trader. Find a plan that will compliment your trading style thereof.
The Early History Of GBP/JPY
Early understanding of how GBP/JPY existed gives you a hint to understand the later on events.
Comparing the two currencies, the British pound came before Japanese yen for several years and was considered as the oldest currency worldwide. According to the Bretton Woods’s agreement in 1940, the value of one pound is 4.03 US dollars.
The Japanese yen was introduced in 1871 by the Meiji government as a replacement with the Edo period. No standard currency exchange has ever existed back then. Japan joined the Gold Standard of currency with the help of the 1871 Currency Act. There is a transition of monetary exchange into floating currency exchange and yen. Sadly, World War II happened, and the yen has lost its value. For over 22 years, one yen is equivalent to one US dollar.
Global Credit Crunch
During 2008, a global financial crisis affects the value of the pound, which weakened against the Japanese yen. Over 7000 pips have lost by GBP/JPY pair in a year compared to only 3300 pips on EUR/USD pair. Additionally, more than 50% decline occurred in GBP/JPY trading from 250.13 to 121.21. All of those take in place within a single year.
The 2016 Brexit decision persisted in a lesser time than the 2008 crisis, and yet volatility was substantial. During June, GBP/JPY trade ranges from a high of 160.66 to a low of 133.31.
What are we trying to say? Historical exchange rates and prices play a significant role in demonstrating how volatile the pairs can be. More accurate forecasting is possible by knowing the impacts of global events on the currency pairing.
Having no idea of necessary details may affect your profit significantly.
The Role Of Great British Pound
Being conscious of the role of each currency pair will bring you into a stronger position in making market predictions.
When you are looking for a place with excellent economy and the international financial market, it is no other than the UK. Plus, the forex trading capital of the world is found within – London. For over a hundred years, the UK remained on top with the largest economy until world wars took place. It has declined the UK economy.
As of the present, the UK economy is stabilized to some extent. It is the second-largest producer of oil and natural gas next to Norway. The UK has also become a global player in financial services.
The British pound, therefore, brings trade opportunities with high volatility and substantial volume.
The Role Of Japanese Yen
Japan’s economy has some unusual characteristics but plays a role in the forex world, just like the prior pair. Huge exporter and highest GDPs are some of Japan’s pride with their growing economy. In a few decades, their real estate bubble collapse.
Japan constantly battled with low fertility rates, an aging workforce, taxation, and consumption in between 2001 and 2011. Thus, results in a 2% scarce growth. The Bank of Japan (BoJ) is responsible for tackling those concerns, such as fighting against consistent deflation and low-interest rates. Knowing the said troubles, Japan remains on top of producing electronics and technological components. They also became the trade partner of China up-to-date.
Aside from the interest rates and price action, GBP/JPY day traders should keep an eye out for:
- Retail sales
- Central bank policies
- Trade balances
- Industrial production
- Inflation data
- Employment rates
- GDP data
Other sources, such as Google Finance, Yahoo Finance, Bloomberg, and Reuters, as well as the Tankan survey, are useful.
Overall, GBP/JPY affects the Asia Pacific region and Western Europe’s monetary policies on its global economic performance. The trading pair attracts numbers of day traders due to its wide trading ranges and volatility.
Beginning a trading journey is never an easy task and is not a straightforward challenge. Understanding the basics and all its fundamentals are necessary to go through at your best trading performance.