02 Jan TRADING EDUCATION: GBP JPY
The GBP JPY is known colloquially within forex trading as the Pound-Yen or less frequently by its nickname the ‘guppy’.
As with most major reserve currency’s against the JPY, forex technical analysis can play an extremely important part of a trader’s tool box. Due to the amount of volume and forex transactions within the GBP JPY resulting in large swings within the price.
Day traders love the wide and volatile swings the pair tends to make on a day by day basis and due to the level of liquidity in the GBPJPY it is also a superb environment for scalpers to quickly get into and out of trades as the GBPJPY can be highly impacted by market sentiment.
The GBP/JPY is also a widely followed market for the medium term and longer term traders. Since the JPY is historically a low yielding currency, it is often used as a funding currency for the carry trade.
Additionally, with the United Kingdom being one of the larger economies in Europe, the GBP JPY carry trade can be viewed as a proxy for worldwide economic health. On the other hand, when the markets experience severe risk aversion, the GBPJPY has been a proxy for market ‘risk-off’ moves as the carry trade gets reversed.
As a result of the carry trade’s impact on the JPY and the size of the United kingdom’s economy the GBPJPY can develop strong directional trends that can be in excess of thousands of pips.