New catch phrase has been emerging lately on financial pages and it is “risk appetite”. The way it’s been used it applies to any uptick in currencies other than USD and JPY, which press branded “heavens”. Logic being, that investors are more risk tolerant and are willing to venture outside of the perceived safety of the Dollar and Yen. Most of us can understand why USD can be considered desirable during times of turmoil, but I’m yet to hear one compelling case for Yen. After all, it is a currency of country which has most to lose in current environment, one that has been hit the hardest during current crises and most dependent on the rest of the world. Besides, Yen has been weakening for last three months already, so any notion of money looking for “safety” in a depreciating asset is laughable.
Risk appetite is supposed to be behind recent rallies in stock markets around the world, including USA. Investors are becoming adventurous and are shedding dollar based securities, mainly bonds, in favor of equities and commodities currencies. British Pound also benefited recently, which is linked to better than expected UK manufacturing data, with the pace of decline easing to its slowest in eight months. In other words, things are still getting worse, only not as fast as before, so this is a reason to celebrate.
I find this kind of fundamental developments helpful in developing broader picture of longer term possibilities, but of limited value when it comes to actual trading. For example, when it comes to the beast, this so called risk appetite should have been apparent about 2-3 months ago, when this pair was at all time lows, not now, when the the up trend has been established. I have been following this pair on these pages for months now. With an exception of one instance couple of weeks ago, I have been on the buying side. Last update of longer term chart was in a post After the weekend. It is time to take another look at daily chart of GBP-JPY.
Risk appetite or not, price is showing an uptrend. Lows are are getting progressively higher, with the one marked ”C” being current one to watch. I think we will see a new high, with price moving above 151.50. My intentions are to buy it with an objective of 162-163. I already have GBP-JPY position, but this one will be closed at about 151.00, with the breakout trade becoming my main holding. Weekly chart also supports this view, but daily graph is the primary tool here.
This chart shows nice price turn at around 139, followed by the 3 White Soldiers pattern, which indicates continuation of the up trend, that now is dominant on this time frame. Once previous high is breached and my order executed, low of about 139 will become major support level. I projected where 100 SMA might be in few weeks time, should the price make new high, and it seems that it would also be around 139. This area will be a stop-loss for my trade, although I hope it will not be necessary. On the same token I’m looking forward to risk appetite continuation, so money keeps flowing out of Yen. For years to come.
Mike K.
Thank you for good work on the beast. You have been right about it for a long time now. Do you think that 163 is limit for now, or simply next leg in an even bigger move?
When (if) it gets to 163, I wil take another look, but even higher levels are possible, 192-194. One thing at a time.
[...] Risk appetite and GBP-JPY. New catch phrase has been emerging lately on financial pages and it is ?risk appetite?. The way it?s been used it applies to any uptick in currencies other than USD and JPY, which press branded ?heavens?. Logic being, that investors are more risk tolerant and are willing to venture outside of the perceived safety of the Dollar and Yen. Most of us can understand why USD can be considered desirable during times of turmoil, but I?m yet to hear one compelling case for Yen. After all, it is a currency of country which has most to lose in current environment, one that has been hit the hardest during current crises and most dependent on the rest of the world. Besides, Yen has been weakening
I really like it when you post this longer term charts. Not afraid to say where to place trades, rather than some vague and general observations one normally finds while surfing web. Thank you.
Risks are incresing now for gbp/jpy trading. Price is moving away from the all time low so the draw down potential is getting higher.
Thank you BJ. You must remember, however, I do not say where to place orders only were I’m placing them. These are not recomendations of any kind, just my own trades.
Good observation, Renata. That’s why I discussed s/l level, way above the low.
R/R for this trade would be roughly 1:1.
How is your overall win loss ratio for the kind of trades mentioned here?
Overall we are talking about something like 3:1 or 4:1, over time. Wins to losses. But it is not linear, both losses and wins can and do “bunch up”. If you look at my posts from January, I think, vast majority of trades worked out. With this trade, when it happens, the actual stop/loss might end up a little different, if the price builds another low which is higher than 139. Besides, one can use 4H chart for stops. Once again, stop will be decided when the trade happens, but certainly would be higher than the suggested one. Of courses, probability of being stopped out would increase also.
[...] under 1.7500. This pair has a support there. Will see if it holds. Back to the beast. In a post Risk appetite and GBP-JPY. I discussed a longer term trade, using daily chart. Last time it was mentioned, that is. Currently [...]