Where next for the pound yen currency pair?

Where next for the pound yen currency pair?

In this portion of the US futures trading webclass we move to the spot forex markets and take in the GBP/JPY and see where it is heading based on the current trend.

00:17

Trading the British Pound pairs overview

00:17

The speaker introduces a focus on analyzing the British Pound through two currency pairs: GBP/AUD and GBP/JPY. They emphasize understanding the chart’s structure to determine whether the market is trending or in a congestion phase, which guides what actions to take when reading the chart.

00:57

Developing trading tactics and setups

00:57

The speaker discusses developing trading tactics or strategies as part of a program. Traders create specific setups based on chart patterns, such as reversals, with defined parameters that suit their personality and have proven successful. They emphasize the importance of waiting patiently for the right setup and understanding key concepts like price action and volume before making trading decisions.

02:06

Understanding chart structures and price action

02:06

The speaker discusses analyzing chart structure, focusing on price action during congestion periods. They emphasize the importance of a reversal checklist, which may include patterns like hammers, shooting stars, and volume indicators, to determine trade entry points. Alternatively, one can trade based on a clear understanding of the current chart structure and price action. The pound-ozzy currency pair is highlighted as a favored example due to its potential for significant moves in shorter timeframes.

03:14

Pound Aussie daily and hourly chart analysis

03:14

The speaker analyzes recent price movements showing a downward trend followed by a slight recovery influenced by the Bank of England’s actions and a sell-off in the pound. On the daily chart, recent days have formed doji candles indicating indecision. This daily price action translates into swings on shorter timeframes, such as hourly charts, where price fluctuates between highs and lows, reflecting congestion and two-way price action. The speaker notes some divergence occurred but it was not significant.

04:14

Pound Yen daily chart and trend reversal

04:14

The speaker discusses periods of divergence and convergence in market movements, highlighting frustration when trends move back and forth. Using the pound-yen daily chart as an example, they describe a clear reversal pattern with a two-bar reversal and a strong trend low marked by a doji day. This was a good point to weigh price action, showing buying activity followed by a reversal low and continuation of the primary trend. Recently, the pound-yen has been the weakest among pound pairs, moving toward a volume point of control and entering a potential congestion phase.

05:23

Pound Yen congestion and volume analysis

05:23

The speaker discusses price action around the volume point of control on a daily chart, indicating a likely sideways movement. They note previous congestion and a subsequent break higher with decent volume, suggesting smoother trading opportunities on faster timeframes. The example contrasts the pound-ozy market, highlighting how doji candles and narrow ranges can limit trading opportunities, prompting traders to seek trends on higher timeframes for more reliable entries and exits.

07:11

Currency crossovers and technical levels

07:11

The speaker discusses a chart used to analyze individual currencies by observing crossovers and divergences. Ideally, they want to see clear divergence indicating a downward move. Currently, the market is in a congestion phase with lines moving in the same direction, influenced by strong market moves.

07:47

The currency has moved below a key support level called s6. Daily levels will be recalculated after rollover later in the evening. The speaker then checks the hourly chart to identify potential downside targets around 1.3141, and if it doesn’t hold, prices could retreat to lower support levels such as s3 or s2.

08:21

The price previously bounced off the s2 level and the current hourly chart levels remain valid until tomorrow when new calculations will be made. Monthly levels are visible on the weekly chart. There is a slight upward turn in the pound, while the yen is moving sideways. A firm downward turn in the yen would require monitoring indices for confirmation.

08:59

The speaker quickly reviews recent volatility in the stock indices, noting the Nasdaq is down slightly. This sentiment shift could influence the yen to turn lower. If the yen declines as expected, it may prevent the currency from dropping to the s4 support level and instead prompt a retest of higher levels.

09:27

Indices volatility impact on Pound Yen

09:27

The discussion focuses on the pound-yen currency pair, highlighting its sentiment-driven nature due to the yen’s involvement. The current Renko chart shows a move higher followed by congestion, with price action fluctuating. The speaker emphasizes the importance of waiting for a decisive directional move, which can be identified using the CSI indicator and key support and resistance levels to guide trading decisions.

10:04

Volatility in markets and trading challenges

10:04

The speaker discusses the current high volatility in the markets due to the ongoing fallout from the virus, noting widespread uncertainty. They mention a humorous observation from a Bloomberg email about fund managers being unsure of market conditions as fundamentals and stock prices are disconnected. The speaker highlights unusual market behavior, such as retail investors using apps like Robinhood to buy stocks of companies that are nearly or actually bankrupt, attracted by their low prices despite poor fundamentals.

11:26

Disconnect between fundamentals and markets

11:26

The speaker discusses the confusion among professional investors due to a disconnect between economic fundamentals and market behavior. Despite uncertainties, the Federal Reserve is actively supporting the market, encouraging investors to follow its lead. At elevated market levels, there is notable retail investor activity, prompting fund managers to reconsider technical analysis, which they had previously dismissed, as these charts seem to reflect retail-driven market movements.

12:29

Blending technicals, fundamentals and markets

12:29

The speaker discusses the common misconception among traders who focus solely on technical analysis, disregarding fundamentals and valuation metrics. They emphasize the importance of blending technical analysis, fundamental analysis, and related market factors to get a complete picture. The speaker also highlights the current market volatility and introduces a proprietary indicator that signals volatility in real time, which can help traders identify momentum and trading opportunities by understanding price action.

13:35

Managing position sizes during volatility

13:35

The speaker advises reducing position sizes during volatile market conditions to avoid significant losses. They emphasize that markets are unstable and can move quickly, so it’s safer to risk only a small amount and re-enter trades if necessary. The cost of trading has decreased significantly with platforms like Robinhood offering low or no commissions, but traders still pay indirectly through spreads. The key takeaway is to trade smaller sizes than usual to manage risk effectively during uncertain times.

14:41

Trading strategies for volatile conditions

14:41

The speaker discusses trading strategies involving contracts, suggesting that if you can trade multiple contracts, it might be beneficial to take profit on one while allowing another to run. This approach helps secure some profit while still taking advantage of potential volatility and momentum in the market. The focus then shifts back to analyzing the Pound-Yen currency pair, with emphasis on monitoring key levels on the hourly chart.

15:12

Pound Yen levels and market sentiment outlook

15:12

The speaker discusses that the pound-yen currency pair has been moving sideways without significant changes throughout the daily levels. However, this could shift if market sentiment improves, suggesting potential for movement if optimism returns.

By Anna Coulling – creator of volume price analysis