Thursday was important to currency traders on the account of central banks. Both the ECB and the BOE had their regular policy meetings, always potential market moving events. Even though expectations were low to none for action by either of them, markets often respond in strange ways to these announcements. We had a good example of this unpredictability. The banks left their respective interest rates unchanged, in line with predictions, yet the currencies reacted in completely different manner. The Euro experienced decent rally, gaining over 100 pips versus the Dollar, while the Pound slumped in relation to the USD. No massive selloff by any stretch of imagination, but noticeable weakness nevertheless. It will be interesting to see how currencies respond to the NFP on Friday – probably not the way we “expect”…
Back to the Pound and its weakness. It came in handy as I had vested interest in the GBP-JPY. Earlier in the week, I wrote about shorting it using the hourly chart for analysis. The entry point was under the low of 166.80, with adjustment if the price made a new high. In that case, the next low of 168.15 was the benchmark. In the end, the second scenario developed, bringing 200 pips. I will look for more trades on the short side, but need to see more price development first.
For the longer-term correction or perhaps even a reversal, the price must test the next minor low on the 4H chart, which is at 163.65, some distance from the current level. Things are trickier now, because even if the price drops there, it could easily move against the trade by 200 or more pips at any time. As far as I am concerned, the intermediate term is still bullish above this support, so the GBP-JPY might even make a new high before the next leg down. We could say the price is in a “no-man’s” land for now. I will be trying to trade this pair down but shorter time frames and much smaller size for now, but will return to this chart here when warranted. Hopefully soon.
Mike K.