FxWirePro: Buy Pound, sell Yen

Yen ranked as the top performer on Black Monday, however yen bids are likely to disappear on Turnaround Tuesday, as global markets recover steadily except China.

Chinese equity sell off continued, with its benchmark stock index, Shanghai Composite registered drop of -7.63% today after more than -8.5% drop yesterday. Another day of selloff initially attracted sellers in Asian markets, however they failed to gain much traction.

US future, S&P500 is up more than 3% already. Though volatility is still significantly high, it may not be sufficient to attract heavy bids on Yen like Yesterday. At one point, Yen rose around 5% against Dollar, while Dow futures dropped close to 7%.

Fast recovery and sharp decline in Yen suggests that fundamental buyers have taken the opportunity to short Yen and volatility at attractive levels.

So Yen is likely to lose further, as world readies itself to look beyond Chinese equity sell offs and rise steadily.

Trade idea 

• With fundamental buyers back in the game we prefer buying Pound, which has broken its recent congestion against Dollar on the upside, against Yen over fundamental theme of monetary policy divergence.
• Buy Pound against Yen at current price (189) with stop loss at 183.5 area and target 196.5 area. Though 183.5 remains key support, interim supports at 187.5 and 186 are prominent too.