The GBPJPY pair, also known as “Geppy” and “The Beast” among forex traders, is regarded as a reliable indicator of world economic health. Individually, the GBP and JPY provide a strong representation of economic health and policymaking in both Asia and Western Europe. The pair is known for its historical volatility, which results in large price fluctuations that traders can employ to benefit from open positions in a short period of time. When a high-yielding currency pair, such as GBP, is combined with the relatively low-yielding JPY, a dissonance is created that can be leveraged to execute a carry trade.
Background of GBP
The British pound, which dates back to the eighth-century Anglo-Saxon period, is one of the world’s oldest still-in-use currencies. It has seen various changes over the years, including serving as the world’s main currency in the 17th and 18th centuries and as the de facto currency of international trade and banking until the First World War. GBP is one of the most valued currencies in the world today, but it is also one of the most volatile, especially since the Brexit vote in 2016.
Background of JPY
The Japanese yen has been in use since 1871 when the Meiji government introduced a national currency to replace the many types of Spanish dollars in use at the time.
The yen has long been one of the region’s more affordable currencies, which the Bank of Japan has worked to maintain in order to keep Japanese exports competitive. As Japan’s wealth has grown, so has its currency’s value.
When is the best time to trade the pair?
When both the London and Tokyo markets are open, it is the optimal time to trade the GBPJPY. This is between 8 and 9 a.m. GMT, when the pair is at its most liquid and when the most dramatic price changes are most likely to occur.
It is critical to take advantage of the information available to you in order to predict when price fluctuations are likely to occur. For example, if you believe the Bank of Japan will drop interest rates, lowering the value of the JPY relative to the GBP, you would buy GBPJPY.
If, on the other hand, you have cause to believe that a major credit rating agency, such as Moody’s, is about to reduce the UK’s credit rating, then you would sell the pair.
Fundamental analysis
Fundamental analysis is the examination of economic data in order to determine an economy’s strength or weakness, as well as capital flows in and out of a country. It requires you to do an in-depth analysis.
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Economic data
Keep an eye on the economic calendar for events that may have an impact on the pair’s price. Any recent economic reports, as well as those scheduled to be released in the near future, should be noted. Gross Domestic Product (GDP), Consumer Confidence Index, Retail Sales data, unemployment, and trade agreements (imports and exports) between the UK and Japan are among the most important.
The involvement of energy commodities in both the United Kingdom and Japan is another reliable pricing effect. While the United Kingdom is a large crude oil exporter, Japan is a major importer.
When the price of crude oil or natural gas falls, the value of the pound falls, while the value of the yen rises. When both movements occur at the same time, there may be a dramatic price move in the pair.
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Bank of Japan
Trading the news and events around the Bank of Japan meeting is usually fascinating and may be profitable. Following the content of the MPM’s monetary policy choices, such as the money market operations guideline, as well as its opinions on economic and financial developments, can project an economic forecast and provide hints as to whether the BoJ will cut, hike, or hold interest rates. Positive economic news, for example, could signal an impending interest rate hike, resulting in a stronger JPY and a sell signal for the GBPJPY. If the news is negative, the exact opposite may occur.
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Bank of England
The role of the Bank of England is to keep the economy and financial system stable. If the UK economy is seen as stable, more individuals will want to invest in the country, resulting in a stronger pound.
It also makes sure that price rises (inflation) are limited. It does it by using the Bank Rate, which is the main interest rate in the economy. When the Bank Rate rises, the value of the pound grows; hence when trading the GBPJPY, you should go long. The opposite is also true.
Sample trading strategies
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Using Moving Averages
We can use the crossover MA strategy to trade this pair. To do this, we’ll need two Exponential Moving Averages, a 21-period, and a 50-period EMA. We shall be looking to enter buy trades whenever the 21 period EMA crosses above the 50 period. Similarly, we’d short the pair whenever the 21-period EMA crosses below the 50-period.
The image above shows the Moving Average strategy on the GBPJPY daily chart.
Risk of trading the pair
- Because this is one of the most volatile currency pairs, misleading signals are often. Traders have the potential to lose money and learn hard lessons quickly.
- Daily trends, as well as the daily range, can be very strong in the GBPJPY, resulting in amplified losses. As a result, you’ll often need to set wider stop-losses.
- Competition from automated trading algorithms – You must now compete against sophisticated trading algorithms. For the GBPJPY pair, the indicators may not work, resulting in an increased trading difficulty.
Summary
GBPJPY is a popular forex pair among traders because it combines two of the world’s most widely traded currencies: the British pound and the Japanese yen. The best time to trade the pair is when the London and Tokyo markets are open. This is between 8 and 9 a.m. GMT. You can use fundamental analysis where you look at the economic data and monetary policies from the Bank of England and Bank of Japan. You can also conduct technical analysis where you employ indicators, for example, Exponential Moving Average and various patterns.
