GBP JPY denotes currency pair British Pound & Japanese Yen. This pair is referred as “Sterling Yen” by traders. This shorthand detail or notation makes use of the ISO 4217 standard codes to indicate the foreign exchange rate of the United Kingdom’s Pound Sterling versus Japanese Yen.
The most outstanding feature of this pair as observed by experienced traders is that, no other pair displays so much volume during Asian Session as the GBP JPY does. This indicates that traders who find Asian Market time zone comfortable and convenient can take the liberty of taking chances with this pair. GBP JPY, because of its sheer volatility happens to be a preferred pair for a short term trader.
GBP JPY Currency Cross Basic
It can’t be emphasized enough that no currency pair offers more action than the GBP JPY cross pair does. To the extent that on some days it has been seen to move up to 300 pips within a day which as most traders would agree is no mean feat. So traders looking for some thrill in trading by juggling the volatility, this is their pair. GBP JPY belongs to volatile pairs group.
It is easy to trade GBP JPY in any economic environment. GBP JPY trading is preferred over several other pairs for a simple reason that it helps to reduce portfolio risk by providing the scope for booking profits in both types of market situations - rising and falling market conditions. Often, when the GBYJPY appreciates it affects other cross rates such as that of USDJPY.
GBP JPY – History of the Pair
From 2000 till 2007, when it came to fluctuations GBP JPY (Sterling Yen) and GBPEUR Pound Sterling and Euro – both pairs were seen to share similarities in several ways - barring the strong volatility comprising important monthly variations of the exchange values of the GBP JPY cross which were likely to occur because of direct interventions by the Bank of Japan with an objective of keeping the Yen within control.
During this 7 year period, the Pound sterling strengthened in value against the Yen, because of its strong foundations comprising the monetary policy along with superior interest rates that applied in Great Britain more than in Japan. This was also the time period during which British economy was getting stronger and gaining strength.
In this market environment, traders found a way to trade. They cashed on carry trade method by playing long on the Pound (the currency bought when interest rates were favourable) and by going short on yen. This strategy crashed in 2007 owing to the what was called as the subprime crisis.
During same time Bank of England’s interest rates too crashed and continued to go downhill until 2008. It was during this time that similarities between the GBP JPY and GBPUSD currency pairs were seen, especially vis-à-vis price volatility.
In September 2000 the exchange value GBP JPY was 150, the GBP JPY cross did show an upsurge which continued to improve at a steady pace for 4 years in spite of the strong monthly weekly movement in the market until the time when the value GBP JPY showed 206,88 – which was during March 2004.
These movements and volatility continued to appear and disappear until September 2005 when GBP JPY was valued at 199,30. This was before the Pound sterling appreciated against the Yen and went on to become more important and lasted until July 2007 when it touched its peak and the GBP JPY was at its high of 248.
Associated with the adverse situation being observed against the dollar and the Euro, Pound’s decline began, a trend which finally made the currency cross reach 200 during March in the following year, that is, 2008 before breakdown was experienced that some people in the trading initially read as a signal pointing to a road leading to recovery.
This lasted until February 2009 and GBP JPY hit 132, its value reduced by almost 46% within a span of 18 months. The Pound sterling won the battle over Yen and GBP JPY touched160 during 2009 summer. However an alteration took place not only with Japanese currency but also against the US Currency dollar and the Euro and the GBP JPY got valued at 149,34 in the beginning of December 2009.
GBP JPY – Personality of This Currency Pair
The most prominent personality trait that will easily eclipse any other is that the GBP JPY is the most active of all the currency cross pairs capable of touching more than 270 pips or even more within a day.
Which means the profile and personality of the trader also has to be such that he is able to handle the volatility and risk associated with this pair. Traders with substantial exposure and experience only should trade this one.
Another feature of this pair lies in the spread that it offers. GBP JPY offers a spread that can range between 6 and 10, & during a normal trading day, traders can even expect to trade a range of 150-200 pips.
There are several factors that can affect exchange rate of GBP JPY pair, like interest rate variation between Bank of Japan and Bank of England; Money supply; inflation; GDP; Balance of Trade data; political disturbance; goods prices for country relying on metals, oil, farming and agriculture and other such commodities for its GDP; growth rate comparison of UK and Japan also impacts Sterling Pound/Yen pair.
The big daddy -mover and shaker of GBP JPY currency cross is oil pricing because of the fact that Japan imports 99% of its total oil consumption
Basic Requirements for Trading the GBP JPY
Trading GBP JPY pair requires application of Technical & Fundamental Analysis of news from the UK and Japanese markets respectively. GBP JPY is an extremely volatile currency cross and is not recommend for traders who are new to trading or are just starting out in the real market.
It is also a widely traded pair with more volatility on average. Private Forex traders, consider this currency pair GBP-JPY - the King because of its basic nature – which is strong to say the least, it is a pair offering sharp trading signals, wide movement scale, along with volatile, unpredictable, and explosive approach.
GBP JPY – Why is it Such a Preferred Currency Cross Amongst Traders
What makes the GBP JPY one of the most popular currency crosses is the explosive nature of its price. We may not exactly know whether it’s the MOST volatile pairs of all or not but what we definitely know that it is volatile and comes with a spread of 7.
If traders are able to get their hands on the pulse of market conditions and its consequences then they can earn a lot as the margin this pair offers is quite good.
There are several other good reasons for beginners to trade this pair;
This currency cross is widely traded, which facilitates liquidity. Liquidity or being cash rich is a fundamental requirement for any pair to be able to benefit from price changes.
GBP JPY pair boasts of spreads that may oscillate between tight & moderate which at majority of instances receives higher spread quotation from brokers in profession because of the kind of instability the pair offers because of its wider price ranges compared to other pairs.
And the final reason for traders to go for this pair is that there are many Forex trading systems and softwares that have been developed for trading this pair information about which can be easily found online.
GBP JPY is known for its extreme volatility & inclination towards large moves and ending up with 150 pips a day. There are days when the pair even moves as much as 200 pips - this means larger profit windows. However, a novice is advised to steer clear of trading this pair and not fall prey to this wide profit window temptation until he gains some real time trading experience and insight into the complexities of trading this highly volatile pair.
The pair is a good choice for traders interested in breakout trading & scalping, provided proper risk management strategies are in place and the pair is traded with extreme care.
There is ample of market information, research and analysis available for GBPUSD pair, which is another reason that makes it favorable among traders.
The GBP JPY Currency Pair – ‘In-Depth In-Sight’
When we discuss or refer to the currency pair GBP JPY, the GBP as we can notice appears as first in the set of two is called the base currency and the Japanese Yen or JPY that is the following currency in the set is the counter-or Quote currency. The pair indicates how many Yens will a trader be required to spend in order to buy one Pound Sterling. Looking at it from another angle - by selling one Pound how many yens will a trader get?
When spreads are being discussed for British PoundJPY they highly depend on quality of or number of transaction, but spreads between five to seven pips are quite commonly seen. The market in British Pound and Yen may be cash convertible, however spreads can further widen at the time of break out of some big economic announcement, or when some economic stats is brought in the open for public consumption.
GBP JPY is fourth highest traded currency pairs among the “major cross pairs” making the pair as one of the highly-traded in the market.
About Great Britain’s Pound Sterling:
Now we shall discuss GBP at length. The acronym - GBP stands for the Pound Sterling and the official symbol by which it is known worldwide is “£”.
The Japanese Yen
Let us learn about the second component of GBP JPY pair, i.e. Japanese Yen. Basics first - Japanese Yen or JPY is symbolized as “¥”. It is the official currency of Japan and is in circulation as legal tender throughout Japan since its official adoption in 1871. It’s the third highest traded currency worldwide.
Besides banknotes, Japanese Government has also issued coins in the market in the denomination of 1 Yen Aluminium Coin, 5 Yen Coin, 50 Yen Coin, 100 Yen Coin, and 500 Yen Coin.
When it comes to yen being considered a safe heaven or stable and sound currency, it is positioned in the fourth place in the world preceded by the Dollar, Euro, and Sterling.
Coming to Japanese Yen’s primary sensitivity areas – traders should know that currency’s value tends to gain advantage from global economic challenges taking Yen’s status as a reserve currency or a safe haven currency into consideration. However it can get hurt in a big way by higher or rising commodity prices. This holds especially true when it comes to oil prices, because Japan is a net importer of this important and key commodity.
Understanding & Using Currency Correlation of USDJPY
To be an effective trader, understanding how different currency pairs move in relation to each other is an important lesson. It’s called Currency Correlation in Forex language. Once the trader gets a hang of this aspect of currencies trading them becomes much more interesting. This helps him to fine-tune, and take his trading skills to new heights and depths.
This helps traders to better understand their and analyze their exposure. There are some pairs which have a tendency to move in tandem with each other, where as others may have the tendency to move in the opposite direction.
Gaining some insight and knowledge about equations related to currency correlation helps traders to manage and organize their portfolios far more effectively. Irrespective of trader’s strategy that he wants to implement to enter and exit trades, exploring scope for diversifying his positions, finding alternate pairs to be able to leverage the view are some of the things that are of vital importance that they keep the correlation between various pairs and their shifting trends in mind – while they are trading and also while they are exploring opportunities.
To take advantage of currency correlation while trading GBP JPY, it will be ideal if we understand the concept of Correlation Coefficient first. Once fundamentals are clear to the trader he will be able to trade the pair with more ease and confidence. Plus the knowledge will help herhim to trade other pairs also besides GBP JPY.
Understanding Forex Correlation Value Range
First thing for all traders to take note of is that the currency correlation coefficient varies between -1 and +1. A correlation of +1 points to the fact that the two Forex pairs in question are going to run in the same direction at every opportunity cent percent of the time.
This phenomenon is called Positive Correlation phenomenon. Then comes next - a positive figure but less than +1 implies that the currency pairs in question generally tend to move in same direction but not always, not 100% of the time. A value nearer to +1 indicates that majority of times the pairs move in tandem or in the same direction.
Now let us discuss negative correlation phenomenon. Correlation of -1 is called negative leaning indicative of the fact that the two currency pairs will never move in the same direction. They will always move in opposite direction - 100% of the time. When the correlation is neither positive nor negative, if it is zero, then it indicates that the relationship between the currency pairs is casual and random.
Learning to Interpret the Currency Correlation Table:
Understanding and Using Currency Correlation of USDJPY for Maximum Advantage
While trading currencies it is of utmost importance for a trader to understand sensitivity of his portfolio to various market situations and sentiments to be able to control it better.
At the same time it is equally important for him to understand, that while trading currencies, he is trading them in pairs (made of two different currencies) as a single unit.
Though it may seem like he is trading a pair, i.e. one unit, technically he is placing two trades every time that he trades currency pair. He is buying one currency and selling the other at the same time.
This means that instead of viewing trading of a currency pair as a single unit, trader should get into a habit of looking at currency pairs as two separate trades.
This approach will help him to understand the connection between various currency pairs more clearly; also, how one pair impacts the value of the other and so on, which will finally have a better impact on his own portfolio.
An important tip for learners here, when a trader is comparing two currency pairs for correlation, he has total four currencies before him. He should ensure that irrespective of whether the currencies are bought or sold – one currency does not appear more than once.
By following this method, trader is creating a unique relationship which will help him gain significant insight into the relationship of the two pairs he is trading in. This comparison of Correlation can give rise to new and exciting trading opportunities as well as strategies. But to get there understanding the concept clearly is absolutely essential.
Understanding Correlation With respect to GBP JPY Pair
Let us understand the angle of mutual dependence of currencies on each other. If trader decides to trade the British pound against the Japanese yen i.e. GBP JPY, what he is actually getting into is the GBPUSD and USDJPY derivative; now when we look at it from this angle – it becomes easier to understand why GBP JPY is in a certain way correlated to sometimes both the pairs or minimum one of them.
However, traders have to bear in mind that the currencies’ mutual dependence on each other is result of their existence in pairs. Some pairs are habituated to travel in same direction, others may take the course that is just opposite; this happens due to the complex forces.
Here it does not matter which currency, or currency pair, makes the first move. zOne thing is certain - that British Pound-Japanese Yen pair moves strongly when the situation is such that Pound-Dollar and Dollar-Yen pairs on M15 bar are shown moving in same direction (the fact of the matter is that they should ideally not be doing this and should be moving in the opposite direction of each other, as they are supposed to be negatively correlated pairs).
These types of counter-correlation situations between GBPUSD currency pair & USDJPY lasts less than one M15 bar, the price of Pound-Yen currency pair moves in that same direction for another minimum additional M15 bar, with a range comparatively larger than that of the two other pairs. In such environments it’s the manual trades that have seen pretty good success.
Currency correlation is ever fluctuating so before trading the pair, traders should look up the correlation data of last few days or weeks and compare it with last year’s data. If they do not find them in sync or find no similarity between short term and long term values, then the trader should take his clue to place his/her trade.
Traders trading Pound Sterling/Yen pair using five minutes chart have observed that it succeeds barring sudden spike up or owing to breaking news. So, traders to keep away from whipsaws should avoid trading half an hour before and after breaking news.
Let us discuss some of the practical realities related to Scalping method of trading vis-à-vis GBP JPY in 1M, 5M, & 15M time frame and using Bollinger Bands indicator.
It is advised that GBP JPY is not traded on ranging, or when the market is not showing any noticeable movement. This strategy should also not be used before any major breaking news is released. To opt for 5-10 pips is good enough. Opening of London and closing of Japan market is the best time to use this strategy.
When this strategy is being put to use in 1M time frame the trader is required to keep a watch on the screen minute by minute, so he should either go for time based stops or loss based stops. When trader is using this strategy his/her time frames are very tight so he should ensure that his stops are also as tightly placed.
Now some tips, irrespective of which time frame trader decides to go with, he should first get the feel of this pair and trade it on demo account. Two, as observed by traders practicing this strategy on Mondays is slightly complicated so avoid this one on a Monday. Trader at no point should ignore resistance and support levels and go by what is being indicated on larger time frames; avoid over trading.
The GBP JPY currency pair is also referred to by other names like “Geppy” “The Beast” or “The Dragon” which are equally common amongst traders.
It’s called the dragon or beast because of the Volatility that comes with it. The GBP JPY currency cross is amongst the most impulsive and volatile currency pairs in the Forex market.
For traders who want to know if there exists a pair that would teach them lessons in Forex trading quickly and fast, the answer would undoubtedly have to be the GBP JPY pair.
GBP JPY is commonly referred to as Sterling Yen among English speaking traders. In the year 2010 this pair amounted to one percent of overall Forex trading, and its volatility reached around to three hundred pips. It is a pair associated with aggressive fluctuations and volatility. So traders with experience and ready to risk some capital for bigger gains did manage to book profits during the period.
For scalpers and risk takers GBP JPY makes for a perfect pair.
Major action and fluctuations scene is witnessed at the time of breaking of economic news in the day when market is active. GBP related news is announced during the morning and 10:30 am and for Yen, the news announcements are during the evening and late evening hours.
The GBP JPY for several seasons has been influenced by carry trade trend. It is crucial for a carry trader that he understands the role interest rates play in the Forex market. He should understand that a country that offers high interest rates will draw more capital from investors seeking higher returns. As country’s interest rates rise, investment will increase, which can have a positive impact on the value of currency of that country.
For an extended period of time Japan had zero percent rate of interest. This prompted trader to sell Yen against the British Pound to earn more profits. However, once crisis hit Japan – it impacted the interest rate differential and carry trading the GBP JPY pair is not same as before.
The fall out of this was that value of yen appreciated. However this appreciation works against a country like Japan, where economy’s growth is directly linked to exports.
The GBP JPY is quoted in 4 decimal places. In some instances even in 5 decimals. The pair follows floating rate of exchange. Rate of exchange is impacted by the law of demand and supply on the interbank currency market.
Like other central banks, the Bank of Japan also intervenes in the Fx market from time to time with the purpose of keeping its currency stable.
Whether it is to stabilize currency or encourage exports, whenever BoJ initiates any move in the Fx market like changing the interest rate or launching asset buyback program etc, sharp spikes can be noticed. This whole thing also impacts GBP JPY pair.
Coming to the British pound i.e. the GBP is the official circulating tender of England and Northern Ireland. It is the 4th highest traded currency on Forex behind the U.S. Dollar, Euro, and Yen. London being the most active Forex market, British pound was one of the components in the 13% of transactions made on the Forex in 2010.
Even during crises, when GBP touched its rock bottom, it withstood the jolt and managed to uphold its strength in terms of value, both in Forex trade as well as on international exchange. England keeps up its effort to stick to its own currency Pound and does not seem keen to adopt the euro.
This high percentage is result of fact that USD JPY happens to be the second highly traded pair comprising 14% of total transactions in 2010. And Japan owes big part of its growth to exports.
White trading Forex irrespective of which currency pair the trading may be trading timing is a critical issue. It can make or break a trader’s day. Choosing the best time to trade is a smart way to maximize the scope for profit for every trade a trader enters into.
Professional and experienced traders, who have been in the business for a while, know this secret. They are extremely careful when it comes to choosing the timing for their trades so that they can produce the optimum profits.
It’s called to choose to trade the Power Hours. In this lesson we shall examine what gives the Power Hours their noteworthy strength. There are two words that we can use to answer this question: volume + volatility - I.e. the amount of trading and amount of movement.
When we speak of Power Hours in context of GBP JPY it refers to the time periods during which the volume as well as the volatility of the pair is at its optimum best. Big volume signifies that multiple lots of a particular currency pairs are in the market, which are either actively being bought or are being sold by traders. And hyper or frenzied volatility is the term that indicates an environment where GBP JPY pair prices are moving fast and quick.
Forex market is open 24 hours & comprises three time zones – New York, London, & Tokyo. There are specific times in each of these markets, when market is more active and therefore chances of making money are also more. These time frames in trading circles are known as Power Hours. Trading during these hours is called Power Hour Trading.
The busiest or most active times in the market are between 3 to 4am, and 8am to 12 pm, since during these two time frames - two markets are overlapping. And, since London overlaps with both Tokyo and New York at some point, it usually is the busiest time period and best time for traders to capitalize on.
Coming to days for trading - mid week is usually the busiest in terms of trading. This means, Tuesdays and Wednesdays shows better movement and activity than Mondays or Fridays, i.e. beginning or end of the week.
GBP JPY is traded during London Session 3am to 12pm ET when the pair is most active - the average range being 140 pips. In New York Session between 9am to 5pm ET is also good for the pair when the average range is 120 pips; and in Tokyo Session GBP JPY trades best between 7pm to 4am ET with average pip of 110.
If situation demands and the traders get occupied with something else during the Power Hours and cannot take advantage of it, they normally shift their focus on other trading times the next best ones, which can help them produce fair results. However, they should not expect as potent or dramatic results as they would get to experience during Power Hours.
European and the U.S. Markets, two of the biggest currency markets worldwide demonstrate high volume of transactions and price movement both of which make for finding some good trading opportunities.
Trading GBP JPY in the European session – European session is based in London. The number has made London the world’s most volatile market for trading currencies. European market connects with the Asian as well as the American sessions.
Traders should keep a close watch on the GBP JPY apart from GBPCHF to catch strong price movements since during the phase the European assets get translated into assets denominated by USD and these conversions cause to make strong price movements.
To make the most of this opportunity, traders will have to wake up early or stay up late because the European session is most active between 2 in the morning (am) and 12pm EST. The watch list for European session includes; GBP JPY, and also GBPCHF, USDCHF, GBPUSD, USDCAD.
Trading GBP JPY during the US Session: The US trading session is based in New York. And during this time the GBP JPY and USDCHF are at a high volume and volatility as in these pairs US dollars is one of the components.
American session trading tends to be hyper because both - the bond and stock markets open at this time and this is the time when foreign investors are converting their respective currencies into assets that are denominated into US Dollars.
The US session is aggressive and active from 8am to 5pm EST. The most potent currency pairs in order of their popularity are: GBP JPY, GBPUSD, USDCHF, GBPCHF, and USDCAD.
There are time gaps when a trader should minimize trading and or not trade at all - the European-Asian overlap session falls under this category. Most traders during this hour are sleeping, and napping. As a result the trading volume is relatively low and trends tend to become unpredictable during sleepy or cold hours. Traders can instead start preparing for the opening of the European session. The low trade time hour runs from 2am and lasts till 4 in the morning EST.
Timing trade is a strong and important tool that traders can use to find strong price movements. Know power hours, know your currency & currency pair, and get going!
GBP JPY Trading Strategy
GBP JPY currency pair is all about large swings; however the Pound Yen pair can be brought under control using low risk and high potential trading strategy. Since there are large swings in this pair targets profits and stop losses may differ based on trade discretion.
GBP JPY is amongst the high profit generating currency pairs when it comes to Swing Trading. Swing trading is based on the primary rule of taking portion from the market as prices fluctuate throughout the market.
This type of trading is most effective on trending markets which are not too volatile. It does not however mean that a trader can’t swing trade volatile markets, but a novice might as well steer clear of it.
Swing trading works better on pairs that are not too volatile. GBP JPY however is a highly volatile pair which actually may help trader to earn a bigger profit per trade but risks associated with this pair are also substantial, some previous trading exposure will stand the trader in a better stead.
The thing you should look for when searching for a currency pair to trade is that it is not too volatile. Volatility, for some traders, is seen as a good thing. So much fluctuation makes it difficult even for an experienced trader to assess teh situation and tackle the trade within such a short span of time. Price fluctuations can happen so quickly that many a times they end up getting better and quicker off traders ability to think of a strategy and apply it.
As said earlier - both ,the risk as well as the reward ratio are big for swing trading this pair. And it is because, this pair is so volatile that new traders avoid trading GBP JPY. It fluctuates throughout the market for almost no clear reason.
Based on where the trader lives and trades from which market, he should set alerts so that he knows as the orders get triggered. It is advised that traders try this at the most twice every night. If he experiences failure the second time, he should ideally wait until the next day to give it another try, which means you have called it a day with a 100 pips loss.
Source: Forexoma.com
The most outstanding feature of this pair as observed by experienced traders is that, no other pair displays so much volume during Asian Session as the GBP JPY does. This indicates that traders who find Asian Market time zone comfortable and convenient can take the liberty of taking chances with this pair. GBP JPY, because of its sheer volatility happens to be a preferred pair for a short term trader.
GBP JPY Currency Cross Basic
It can’t be emphasized enough that no currency pair offers more action than the GBP JPY cross pair does. To the extent that on some days it has been seen to move up to 300 pips within a day which as most traders would agree is no mean feat. So traders looking for some thrill in trading by juggling the volatility, this is their pair. GBP JPY belongs to volatile pairs group.
It is easy to trade GBP JPY in any economic environment. GBP JPY trading is preferred over several other pairs for a simple reason that it helps to reduce portfolio risk by providing the scope for booking profits in both types of market situations - rising and falling market conditions. Often, when the GBYJPY appreciates it affects other cross rates such as that of USDJPY.
GBP JPY – History of the Pair
From 2000 till 2007, when it came to fluctuations GBP JPY (Sterling Yen) and GBPEUR Pound Sterling and Euro – both pairs were seen to share similarities in several ways - barring the strong volatility comprising important monthly variations of the exchange values of the GBP JPY cross which were likely to occur because of direct interventions by the Bank of Japan with an objective of keeping the Yen within control.
During this 7 year period, the Pound sterling strengthened in value against the Yen, because of its strong foundations comprising the monetary policy along with superior interest rates that applied in Great Britain more than in Japan. This was also the time period during which British economy was getting stronger and gaining strength.
In this market environment, traders found a way to trade. They cashed on carry trade method by playing long on the Pound (the currency bought when interest rates were favourable) and by going short on yen. This strategy crashed in 2007 owing to the what was called as the subprime crisis.
During same time Bank of England’s interest rates too crashed and continued to go downhill until 2008. It was during this time that similarities between the GBP JPY and GBPUSD currency pairs were seen, especially vis-à-vis price volatility.
In September 2000 the exchange value GBP JPY was 150, the GBP JPY cross did show an upsurge which continued to improve at a steady pace for 4 years in spite of the strong monthly weekly movement in the market until the time when the value GBP JPY showed 206,88 – which was during March 2004.
These movements and volatility continued to appear and disappear until September 2005 when GBP JPY was valued at 199,30. This was before the Pound sterling appreciated against the Yen and went on to become more important and lasted until July 2007 when it touched its peak and the GBP JPY was at its high of 248.
Associated with the adverse situation being observed against the dollar and the Euro, Pound’s decline began, a trend which finally made the currency cross reach 200 during March in the following year, that is, 2008 before breakdown was experienced that some people in the trading initially read as a signal pointing to a road leading to recovery.
This lasted until February 2009 and GBP JPY hit 132, its value reduced by almost 46% within a span of 18 months. The Pound sterling won the battle over Yen and GBP JPY touched160 during 2009 summer. However an alteration took place not only with Japanese currency but also against the US Currency dollar and the Euro and the GBP JPY got valued at 149,34 in the beginning of December 2009.
GBP JPY – Personality of This Currency Pair
The most prominent personality trait that will easily eclipse any other is that the GBP JPY is the most active of all the currency cross pairs capable of touching more than 270 pips or even more within a day.
Which means the profile and personality of the trader also has to be such that he is able to handle the volatility and risk associated with this pair. Traders with substantial exposure and experience only should trade this one.
Another feature of this pair lies in the spread that it offers. GBP JPY offers a spread that can range between 6 and 10, & during a normal trading day, traders can even expect to trade a range of 150-200 pips.
There are several factors that can affect exchange rate of GBP JPY pair, like interest rate variation between Bank of Japan and Bank of England; Money supply; inflation; GDP; Balance of Trade data; political disturbance; goods prices for country relying on metals, oil, farming and agriculture and other such commodities for its GDP; growth rate comparison of UK and Japan also impacts Sterling Pound/Yen pair.
The big daddy -mover and shaker of GBP JPY currency cross is oil pricing because of the fact that Japan imports 99% of its total oil consumption
Basic Requirements for Trading the GBP JPY
Trading GBP JPY pair requires application of Technical & Fundamental Analysis of news from the UK and Japanese markets respectively. GBP JPY is an extremely volatile currency cross and is not recommend for traders who are new to trading or are just starting out in the real market.
It is also a widely traded pair with more volatility on average. Private Forex traders, consider this currency pair GBP-JPY - the King because of its basic nature – which is strong to say the least, it is a pair offering sharp trading signals, wide movement scale, along with volatile, unpredictable, and explosive approach.
GBP JPY – Why is it Such a Preferred Currency Cross Amongst Traders
What makes the GBP JPY one of the most popular currency crosses is the explosive nature of its price. We may not exactly know whether it’s the MOST volatile pairs of all or not but what we definitely know that it is volatile and comes with a spread of 7.
If traders are able to get their hands on the pulse of market conditions and its consequences then they can earn a lot as the margin this pair offers is quite good.
There are several other good reasons for beginners to trade this pair;
This currency cross is widely traded, which facilitates liquidity. Liquidity or being cash rich is a fundamental requirement for any pair to be able to benefit from price changes.
GBP JPY pair boasts of spreads that may oscillate between tight & moderate which at majority of instances receives higher spread quotation from brokers in profession because of the kind of instability the pair offers because of its wider price ranges compared to other pairs.
And the final reason for traders to go for this pair is that there are many Forex trading systems and softwares that have been developed for trading this pair information about which can be easily found online.
GBP JPY is known for its extreme volatility & inclination towards large moves and ending up with 150 pips a day. There are days when the pair even moves as much as 200 pips - this means larger profit windows. However, a novice is advised to steer clear of trading this pair and not fall prey to this wide profit window temptation until he gains some real time trading experience and insight into the complexities of trading this highly volatile pair.
The pair is a good choice for traders interested in breakout trading & scalping, provided proper risk management strategies are in place and the pair is traded with extreme care.
There is ample of market information, research and analysis available for GBPUSD pair, which is another reason that makes it favorable among traders.
The GBP JPY Currency Pair – ‘In-Depth In-Sight’
When we discuss or refer to the currency pair GBP JPY, the GBP as we can notice appears as first in the set of two is called the base currency and the Japanese Yen or JPY that is the following currency in the set is the counter-or Quote currency. The pair indicates how many Yens will a trader be required to spend in order to buy one Pound Sterling. Looking at it from another angle - by selling one Pound how many yens will a trader get?
When spreads are being discussed for British PoundJPY they highly depend on quality of or number of transaction, but spreads between five to seven pips are quite commonly seen. The market in British Pound and Yen may be cash convertible, however spreads can further widen at the time of break out of some big economic announcement, or when some economic stats is brought in the open for public consumption.
GBP JPY is fourth highest traded currency pairs among the “major cross pairs” making the pair as one of the highly-traded in the market.
About Great Britain’s Pound Sterling:
Now we shall discuss GBP at length. The acronym - GBP stands for the Pound Sterling and the official symbol by which it is known worldwide is “£”.
The Japanese Yen
Let us learn about the second component of GBP JPY pair, i.e. Japanese Yen. Basics first - Japanese Yen or JPY is symbolized as “¥”. It is the official currency of Japan and is in circulation as legal tender throughout Japan since its official adoption in 1871. It’s the third highest traded currency worldwide.
Besides banknotes, Japanese Government has also issued coins in the market in the denomination of 1 Yen Aluminium Coin, 5 Yen Coin, 50 Yen Coin, 100 Yen Coin, and 500 Yen Coin.
When it comes to yen being considered a safe heaven or stable and sound currency, it is positioned in the fourth place in the world preceded by the Dollar, Euro, and Sterling.
Coming to Japanese Yen’s primary sensitivity areas – traders should know that currency’s value tends to gain advantage from global economic challenges taking Yen’s status as a reserve currency or a safe haven currency into consideration. However it can get hurt in a big way by higher or rising commodity prices. This holds especially true when it comes to oil prices, because Japan is a net importer of this important and key commodity.
Understanding & Using Currency Correlation of USDJPY
To be an effective trader, understanding how different currency pairs move in relation to each other is an important lesson. It’s called Currency Correlation in Forex language. Once the trader gets a hang of this aspect of currencies trading them becomes much more interesting. This helps him to fine-tune, and take his trading skills to new heights and depths.
This helps traders to better understand their and analyze their exposure. There are some pairs which have a tendency to move in tandem with each other, where as others may have the tendency to move in the opposite direction.
Gaining some insight and knowledge about equations related to currency correlation helps traders to manage and organize their portfolios far more effectively. Irrespective of trader’s strategy that he wants to implement to enter and exit trades, exploring scope for diversifying his positions, finding alternate pairs to be able to leverage the view are some of the things that are of vital importance that they keep the correlation between various pairs and their shifting trends in mind – while they are trading and also while they are exploring opportunities.
To take advantage of currency correlation while trading GBP JPY, it will be ideal if we understand the concept of Correlation Coefficient first. Once fundamentals are clear to the trader he will be able to trade the pair with more ease and confidence. Plus the knowledge will help herhim to trade other pairs also besides GBP JPY.
Understanding Forex Correlation Value Range
First thing for all traders to take note of is that the currency correlation coefficient varies between -1 and +1. A correlation of +1 points to the fact that the two Forex pairs in question are going to run in the same direction at every opportunity cent percent of the time.
This phenomenon is called Positive Correlation phenomenon. Then comes next - a positive figure but less than +1 implies that the currency pairs in question generally tend to move in same direction but not always, not 100% of the time. A value nearer to +1 indicates that majority of times the pairs move in tandem or in the same direction.
Now let us discuss negative correlation phenomenon. Correlation of -1 is called negative leaning indicative of the fact that the two currency pairs will never move in the same direction. They will always move in opposite direction - 100% of the time. When the correlation is neither positive nor negative, if it is zero, then it indicates that the relationship between the currency pairs is casual and random.
Learning to Interpret the Currency Correlation Table:
- 0 to 0.2 points to very weak to insignificant correlation
- .2 to .4 is indicative of weak, low correlation, not considered too critical
- .4 to .7 is indicative of reasonable or moderate correlations
- .7 to .9 Strong, high correlation
- .9 to 1 is indicative of very strong correlation
Understanding and Using Currency Correlation of USDJPY for Maximum Advantage
While trading currencies it is of utmost importance for a trader to understand sensitivity of his portfolio to various market situations and sentiments to be able to control it better.
At the same time it is equally important for him to understand, that while trading currencies, he is trading them in pairs (made of two different currencies) as a single unit.
Though it may seem like he is trading a pair, i.e. one unit, technically he is placing two trades every time that he trades currency pair. He is buying one currency and selling the other at the same time.
This means that instead of viewing trading of a currency pair as a single unit, trader should get into a habit of looking at currency pairs as two separate trades.
This approach will help him to understand the connection between various currency pairs more clearly; also, how one pair impacts the value of the other and so on, which will finally have a better impact on his own portfolio.
An important tip for learners here, when a trader is comparing two currency pairs for correlation, he has total four currencies before him. He should ensure that irrespective of whether the currencies are bought or sold – one currency does not appear more than once.
By following this method, trader is creating a unique relationship which will help him gain significant insight into the relationship of the two pairs he is trading in. This comparison of Correlation can give rise to new and exciting trading opportunities as well as strategies. But to get there understanding the concept clearly is absolutely essential.
Understanding Correlation With respect to GBP JPY Pair
Let us understand the angle of mutual dependence of currencies on each other. If trader decides to trade the British pound against the Japanese yen i.e. GBP JPY, what he is actually getting into is the GBPUSD and USDJPY derivative; now when we look at it from this angle – it becomes easier to understand why GBP JPY is in a certain way correlated to sometimes both the pairs or minimum one of them.
However, traders have to bear in mind that the currencies’ mutual dependence on each other is result of their existence in pairs. Some pairs are habituated to travel in same direction, others may take the course that is just opposite; this happens due to the complex forces.
Here it does not matter which currency, or currency pair, makes the first move. zOne thing is certain - that British Pound-Japanese Yen pair moves strongly when the situation is such that Pound-Dollar and Dollar-Yen pairs on M15 bar are shown moving in same direction (the fact of the matter is that they should ideally not be doing this and should be moving in the opposite direction of each other, as they are supposed to be negatively correlated pairs).
These types of counter-correlation situations between GBPUSD currency pair & USDJPY lasts less than one M15 bar, the price of Pound-Yen currency pair moves in that same direction for another minimum additional M15 bar, with a range comparatively larger than that of the two other pairs. In such environments it’s the manual trades that have seen pretty good success.
Currency correlation is ever fluctuating so before trading the pair, traders should look up the correlation data of last few days or weeks and compare it with last year’s data. If they do not find them in sync or find no similarity between short term and long term values, then the trader should take his clue to place his/her trade.
Traders trading Pound Sterling/Yen pair using five minutes chart have observed that it succeeds barring sudden spike up or owing to breaking news. So, traders to keep away from whipsaws should avoid trading half an hour before and after breaking news.
Let us discuss some of the practical realities related to Scalping method of trading vis-à-vis GBP JPY in 1M, 5M, & 15M time frame and using Bollinger Bands indicator.
It is advised that GBP JPY is not traded on ranging, or when the market is not showing any noticeable movement. This strategy should also not be used before any major breaking news is released. To opt for 5-10 pips is good enough. Opening of London and closing of Japan market is the best time to use this strategy.
When this strategy is being put to use in 1M time frame the trader is required to keep a watch on the screen minute by minute, so he should either go for time based stops or loss based stops. When trader is using this strategy his/her time frames are very tight so he should ensure that his stops are also as tightly placed.
Now some tips, irrespective of which time frame trader decides to go with, he should first get the feel of this pair and trade it on demo account. Two, as observed by traders practicing this strategy on Mondays is slightly complicated so avoid this one on a Monday. Trader at no point should ignore resistance and support levels and go by what is being indicated on larger time frames; avoid over trading.
The GBP JPY currency pair is also referred to by other names like “Geppy” “The Beast” or “The Dragon” which are equally common amongst traders.
It’s called the dragon or beast because of the Volatility that comes with it. The GBP JPY currency cross is amongst the most impulsive and volatile currency pairs in the Forex market.
For traders who want to know if there exists a pair that would teach them lessons in Forex trading quickly and fast, the answer would undoubtedly have to be the GBP JPY pair.
GBP JPY is commonly referred to as Sterling Yen among English speaking traders. In the year 2010 this pair amounted to one percent of overall Forex trading, and its volatility reached around to three hundred pips. It is a pair associated with aggressive fluctuations and volatility. So traders with experience and ready to risk some capital for bigger gains did manage to book profits during the period.
For scalpers and risk takers GBP JPY makes for a perfect pair.
Major action and fluctuations scene is witnessed at the time of breaking of economic news in the day when market is active. GBP related news is announced during the morning and 10:30 am and for Yen, the news announcements are during the evening and late evening hours.
The GBP JPY for several seasons has been influenced by carry trade trend. It is crucial for a carry trader that he understands the role interest rates play in the Forex market. He should understand that a country that offers high interest rates will draw more capital from investors seeking higher returns. As country’s interest rates rise, investment will increase, which can have a positive impact on the value of currency of that country.
For an extended period of time Japan had zero percent rate of interest. This prompted trader to sell Yen against the British Pound to earn more profits. However, once crisis hit Japan – it impacted the interest rate differential and carry trading the GBP JPY pair is not same as before.
The fall out of this was that value of yen appreciated. However this appreciation works against a country like Japan, where economy’s growth is directly linked to exports.
The GBP JPY is quoted in 4 decimal places. In some instances even in 5 decimals. The pair follows floating rate of exchange. Rate of exchange is impacted by the law of demand and supply on the interbank currency market.
Like other central banks, the Bank of Japan also intervenes in the Fx market from time to time with the purpose of keeping its currency stable.
Whether it is to stabilize currency or encourage exports, whenever BoJ initiates any move in the Fx market like changing the interest rate or launching asset buyback program etc, sharp spikes can be noticed. This whole thing also impacts GBP JPY pair.
Coming to the British pound i.e. the GBP is the official circulating tender of England and Northern Ireland. It is the 4th highest traded currency on Forex behind the U.S. Dollar, Euro, and Yen. London being the most active Forex market, British pound was one of the components in the 13% of transactions made on the Forex in 2010.
Even during crises, when GBP touched its rock bottom, it withstood the jolt and managed to uphold its strength in terms of value, both in Forex trade as well as on international exchange. England keeps up its effort to stick to its own currency Pound and does not seem keen to adopt the euro.
This high percentage is result of fact that USD JPY happens to be the second highly traded pair comprising 14% of total transactions in 2010. And Japan owes big part of its growth to exports.
White trading Forex irrespective of which currency pair the trading may be trading timing is a critical issue. It can make or break a trader’s day. Choosing the best time to trade is a smart way to maximize the scope for profit for every trade a trader enters into.
Professional and experienced traders, who have been in the business for a while, know this secret. They are extremely careful when it comes to choosing the timing for their trades so that they can produce the optimum profits.
It’s called to choose to trade the Power Hours. In this lesson we shall examine what gives the Power Hours their noteworthy strength. There are two words that we can use to answer this question: volume + volatility - I.e. the amount of trading and amount of movement.
When we speak of Power Hours in context of GBP JPY it refers to the time periods during which the volume as well as the volatility of the pair is at its optimum best. Big volume signifies that multiple lots of a particular currency pairs are in the market, which are either actively being bought or are being sold by traders. And hyper or frenzied volatility is the term that indicates an environment where GBP JPY pair prices are moving fast and quick.
Forex market is open 24 hours & comprises three time zones – New York, London, & Tokyo. There are specific times in each of these markets, when market is more active and therefore chances of making money are also more. These time frames in trading circles are known as Power Hours. Trading during these hours is called Power Hour Trading.
The busiest or most active times in the market are between 3 to 4am, and 8am to 12 pm, since during these two time frames - two markets are overlapping. And, since London overlaps with both Tokyo and New York at some point, it usually is the busiest time period and best time for traders to capitalize on.
Coming to days for trading - mid week is usually the busiest in terms of trading. This means, Tuesdays and Wednesdays shows better movement and activity than Mondays or Fridays, i.e. beginning or end of the week.
GBP JPY is traded during London Session 3am to 12pm ET when the pair is most active - the average range being 140 pips. In New York Session between 9am to 5pm ET is also good for the pair when the average range is 120 pips; and in Tokyo Session GBP JPY trades best between 7pm to 4am ET with average pip of 110.
If situation demands and the traders get occupied with something else during the Power Hours and cannot take advantage of it, they normally shift their focus on other trading times the next best ones, which can help them produce fair results. However, they should not expect as potent or dramatic results as they would get to experience during Power Hours.
European and the U.S. Markets, two of the biggest currency markets worldwide demonstrate high volume of transactions and price movement both of which make for finding some good trading opportunities.
Trading GBP JPY in the European session – European session is based in London. The number has made London the world’s most volatile market for trading currencies. European market connects with the Asian as well as the American sessions.
Traders should keep a close watch on the GBP JPY apart from GBPCHF to catch strong price movements since during the phase the European assets get translated into assets denominated by USD and these conversions cause to make strong price movements.
To make the most of this opportunity, traders will have to wake up early or stay up late because the European session is most active between 2 in the morning (am) and 12pm EST. The watch list for European session includes; GBP JPY, and also GBPCHF, USDCHF, GBPUSD, USDCAD.
Trading GBP JPY during the US Session: The US trading session is based in New York. And during this time the GBP JPY and USDCHF are at a high volume and volatility as in these pairs US dollars is one of the components.
American session trading tends to be hyper because both - the bond and stock markets open at this time and this is the time when foreign investors are converting their respective currencies into assets that are denominated into US Dollars.
The US session is aggressive and active from 8am to 5pm EST. The most potent currency pairs in order of their popularity are: GBP JPY, GBPUSD, USDCHF, GBPCHF, and USDCAD.
There are time gaps when a trader should minimize trading and or not trade at all - the European-Asian overlap session falls under this category. Most traders during this hour are sleeping, and napping. As a result the trading volume is relatively low and trends tend to become unpredictable during sleepy or cold hours. Traders can instead start preparing for the opening of the European session. The low trade time hour runs from 2am and lasts till 4 in the morning EST.
Timing trade is a strong and important tool that traders can use to find strong price movements. Know power hours, know your currency & currency pair, and get going!
GBP JPY Trading Strategy
GBP JPY currency pair is all about large swings; however the Pound Yen pair can be brought under control using low risk and high potential trading strategy. Since there are large swings in this pair targets profits and stop losses may differ based on trade discretion.
GBP JPY is amongst the high profit generating currency pairs when it comes to Swing Trading. Swing trading is based on the primary rule of taking portion from the market as prices fluctuate throughout the market.
This type of trading is most effective on trending markets which are not too volatile. It does not however mean that a trader can’t swing trade volatile markets, but a novice might as well steer clear of it.
Swing trading works better on pairs that are not too volatile. GBP JPY however is a highly volatile pair which actually may help trader to earn a bigger profit per trade but risks associated with this pair are also substantial, some previous trading exposure will stand the trader in a better stead.
The thing you should look for when searching for a currency pair to trade is that it is not too volatile. Volatility, for some traders, is seen as a good thing. So much fluctuation makes it difficult even for an experienced trader to assess teh situation and tackle the trade within such a short span of time. Price fluctuations can happen so quickly that many a times they end up getting better and quicker off traders ability to think of a strategy and apply it.
As said earlier - both ,the risk as well as the reward ratio are big for swing trading this pair. And it is because, this pair is so volatile that new traders avoid trading GBP JPY. It fluctuates throughout the market for almost no clear reason.
Based on where the trader lives and trades from which market, he should set alerts so that he knows as the orders get triggered. It is advised that traders try this at the most twice every night. If he experiences failure the second time, he should ideally wait until the next day to give it another try, which means you have called it a day with a 100 pips loss.
Source: Forexoma.com
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