GBP/JPY Down by about 600 pips!
The GBP/JPY is down by about 600 pips since my post last week. That's not a bad move considering that most of the majors, like the GBP/USD and EUR/USD have been flat for the last five days. Keep your eye on the cross rates like the GBP/JPY because they could see some more movement.
I'm especially interested in the yen-quoted crosses right now because global stock markets are at a precarious point. Another leg lower in stocks could send the yen a lot higher, meaning cross rates like the GBP/JPY could continue lower.
The catalyst -- and key -- is for stocks to sell-off. This will really make the yen strengthen and get the yen-quote crosses moving lower.
Eric
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Consider the Crosses
With so much movement in the U.S. dollar recently, it can be kind of difficult to find the next trade if you're following only the EUR/USD, GBP/USD, USD/CAD, AUD/USD, USD/JPY, etc. The trends involving the U.S. dollar right now are huge, but they can be a little frustrating if you've missed them.
One strategy to consider when the dollar is extended is to focus on the cross rates. There are many good set-ups unfolding in some of the cross rates, most of which haven't seen the big trends associated with dollar-related pairs.
One cross rate to watch is the GBP/JPY. It recently rolled over from a long-term descending resistance level, but has firm horiztonal support below at 209.00.
European Central Bank Shifts Gears
The European Central Bank (ECB) shifted gears at its meeting this morning by acknowledging slowing growth in its economy. This is the same story we've been hearing from the Federal Reserve in the United States. Earlier in the week, the Reserve Bank of Australia made some similar remarks. After this morning, therefore, the ECB has joined the trend of warnings from central banks.
The reaction by the forex market was to sell the euro. But the euro was already down quite a bit in the last few weeks going into this morning's ECB meeting, which is why we didn't see a bigger reaction to the shift in language.
Looking at the EUR/USD, it's now back down to relative lows within its multi-month trading range. A breakdown is likely, as measured by a drop to 1.5200. But the risks of a bounce are growing by the day. That's why I'm not shorting the EUR/USD at this point and, instead, waiting for a better entry point from a risk management perspective.
