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Yen to Sterling – Trading Tips

Despite many types of world currency pairs in trading, the Yen and Sterling make a trendy cross pair. The precise definition of a cross pair. It means it doesn’t include the US dollar when you are trying to estimate the exchange rate.

The Sterling and the Japanese Yen are considered the top currencies in the world. One-fifth of the trading volume consists of the Yen, and the Sterling makes up around 15 percent.

This article will explain a bit of everything to understand the background of the Japanese yen to the British pound cross-pair and why investing in it can be very profitable if you know the fundamentals of cross-pair trading in Forex. 

Fun fact: GBP and JPY are considered the oldest currencies in the world that we are still using, even though the Japanese Yen came much later than the Sterling. Energy pricing also significantly impacts JYP since Japan exports lots of natural gas and crude oil. Whenever something regarding global energy shifts, it will influence the GBP/JPY pair.

Overview of the GBP/JPY currency pair

First, we will look closely at this Forex currency pair and its different characteristics.

The GBP/JPY cross is the parity representing the exchange rate of the pound sterling and the Yen. Concretely, this currency pair expresses the value of pound sterling in Yen.

Concerning the base currency of this cross, it is. Therefore the pound sterling also called “cable” in the world of trading and is at this moment the fourth most traded currency in the world. The issuer is the Bank of England or BOE.

The GBP is often used as a reserve currency and is characterized by a relatively high value compared to other major currencies.

The quote currency of this GBP/JPY cross is the Yen and, therefore, the Japanese currency, the third most traded currency on the market. The BOJ, or Bank of Japan, is in charge of its issuance.

The Yen is considered a safe haven currency because the Japanese economy shows low inflation and high stability. It is characterized by a relatively low value compared to other major currencies, particularly because of a very low-interest rate. This currency is particularly important in commercial operations in Asia and has high transaction volumes.

It should also be noted that Yen’s very low national currency exchange rate has historically been favored by the country’s government, which thus supports the country’s exports and tends to support the economy and its growth.

The GBP/JPY forex currency pair is very frequently subject to large, even gigantic, chart movements. For example, if we go back to the stock market crash of 2008 when currency traders were shocked, the 3,000 pip share of the major currency pair EUR/USD was actually much less than that which hit the pair GBP/ JPY since the chart move here spanned over 7,000 pips. So what we can see is the high volatility and huge swings in the GBP/JPY exchange rate. That’s also why this currency pair is called “the dragon,” given the energy of the GBP/JPY and the speed at which its course moves.

GBP/JPY

How to perform a technical analysis of the GBP/JPY currency pair?

In addition to carrying out this essential fundamental analysis on the course of the GBP/JPY currency pair, it will also be necessary to conduct a technical analysis of this cross.

Technical analysis is a method of study and evaluation based on the dynamics of the market and studies the history of prices.

The objective of technical analysis is thus to predict the price dynamics of this currency pair in the future using technical indicators and statistical tools. There are various techniques and methods to calculate this cross’s volatility, the trend’s strength, or the most probable levels of trend reversal or acceleration, such as Bollinger Bands, supports and resistances, pivot points, moving averages, or the RSI indicator, and many others.

Day Trading and its benefits

Day trading is advised if you decide on the GBP/JPY pair since it offers many benefits. To name a few, there are:

The volatility is high and offers many chances to gain profit. In Forex, everything can change quickly, but high rates brought benefits to this currency pair. During the financial crisis, there were only more opportunities for trading, and volatility got even higher.

 GBP/JPY is famous for its right spot, whatever is happening globally, and influences the forex market. Being decentralized, Forex opened a new array of real-time trading opportunities.

What are the risks?

Despite its good market position, some risks are always involved. Whichever currency you pick, you have to get in deep on currency rates. Volatility can be a disadvantage sometimes, especially if you rush in as soon as a small sign of a good opportunity occurs.

That explains the nickname “widowmaker” given to this currency pair. Keep in mind that you must obtain a certain amount of experience before cross-trading. Since daily trends are high, you will need to set a wider stop-loss, causing losses.

Better informed than relying on promises

We always mention the importance of following what’s happening in the market, focusing on market data, and continuously learning. As we said above, you’ll need experience in trading if you want to trade GBP/JPY, and it is preferable to even experiment with a small amount rather than take a risk without expert guidance. 

Another risk is the existence of automated software. It can predict better than you, so you’ll have to work harder to observe patterns and rely on your knowledge. Trusting your gut is also essential, but it comes after you’ve established your position as an experienced and successful trader. It is a challenge, but that’s what takes you out of your comfort zone and challenges you to think differently and develop new trading strategies.

What else influences the GBP/JPY pair?

USD/JPY pair hit a symbolic level. What do analysts say?

Let’s see what influence the volatility of the Japanese Yen and British pound currency pair.

Banks play a huge role in how the economy affects the market, thus the currency value. There were many cuts in rates from the Bank of England, and the Bank of Japan has had very low-interest rates for a very long time, which influences the strength of the JPY in contrast with GBP. As a trader, you should continuously pay attention to the CPI (Consumer Price Index) since it can be critical to JPY cross-currency pairs.

Following this example, you can easily conclude that many “outside” factors decide how the currency will behave on the market. From political events to governments changing their policies, everything can be a determining factor in Forex. Stock market indexes should also be considered as something that can strengthen the currency or make it weaker. Global factors are never to be overseen in trading of this kind.

Positive and negative correlations

You should be familiar with these terms when you are trading currencies since, despite the general assumption, they move together since they are a pair. The tricky part is that they can move with each other but in the opposite direction. The positive correlation represents the pair reacting accordingly (when the US dollar acts as the counter currency). In contrast, a negative correlation means they are moving in the opposite direction from each other (when the US dollar is the base currency).

What is essential for the GBP/JPY day trading strategy?

Timing is essential when trading GBP/JPY; the best time frames are 1:30, 2:00, 8:30, and 10:00 EST. Please pay attention to trading times and when they overlap, focusing primarily on the Asian European Overlap (between midnight and 3:00 EST).

Scalping Strategy

Forex scalping

This method is exact, meaning you need to use the 5- minute time frame for tracking GBP/JPY signals. You are using twenty pips together with 24 EMAs on the indicator front. Here, “uptrend” and “downtrend” are used interchangeably. 

An uptrend means that the price went above the 25 EMA, but it’s considered a downtrend when it gets below. Pay attention to the trend angle since a horizontal one can mean that the market is ranging. 

Don’t trend if the angle is flat, but consider trending when the angle is 30 degrees or more, which means a buy setup. When selling, choose a ten-pip stop loss above the pin bar height. However, exercise caution and consult your broker if there is any doubt.

One more thing to remember.

The GBP/JPY cross-pair can easily become bullish or bearish, so you must set up small lot sizes to be smart about your trading. Stop losses should be wide, as we mentioned before, so you can go for higher targets while staying in the zone where you minimize the potential loss.

A strategy that works for one trader doesn’t mean it will work for you, so experiment with small amounts first, like when you were beginning to trade. That way, you can see patterns and create a strategy that will be something that complements your trading personality. Keep informed, and don’t be afraid to ask questions!

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