The British pound against the Japanese yen has sold off strongly since the May 10th, 140.09 high. Today’s 1.0% decline stemmed from safe haven flows that stemmed from Friday’s sell off in US stocks. Last week, we saw sterling sell off following Prime Minister May’s political gamble failed, leading to a hung Parliament.
Monday, Tory and Labour parties reportedly held private talks on a soft Brexit. Discussions have occurred on a potential cross-party Brexit commission to agree on common ground.
This week is very heavy on central bank interest rate decisions, with the Fed, BOE, BOJ and SNB all having rate decisions. The focus will be on the Fed, a rate hike is priced in, but the weaker US data could lower the dot plot forecasts.
Price action on the GBP/JPY daily chart shows the recent decline started once price formed a double-top pattern on May 10th. Today’s decline is tentatively testing the 200-day SMA. Last week, price fell below both the 50- and 100- day SMA(s). If bearishness persists price may not find support until the 135 handle. If that level is taken out, we could see sterling target the 132.50 area. To the upside, the 142.00 to 142.50 zone remains key resistance.
The trade: Sell GBP/JPY at 140.25 with a stop loss at 141.25 and a take profit at 137.25. The Risk/Reward Ratio is 1:3