FxWirePro: GBP/JPY outlook – downside risk-reward very attractive

As Pound snaps back from downward sloping channel floor against Dollar, it has been trying to snap back similar loss against Yen.

Fundamentally speaking, Bank of Japan (BOJ), even if doesn't increase its stimulus is continuing its purchase at ¥80 trillion per month, whereas Bank of England (BOE), despite scaling back its inflation expectations, will be looking for opportunity to hike rates. So there exists monetary policy divergence between the two currencies. Moreover, Pound is a higher yielding currencies.

However, after last week's monetary policy meeting of European Central Bank, we believe policy divergence punters have taken hard hit.

Moreover, with lesser easing from ECB, means lesser expected liquidity in the market, which can generate some form of risk aversion in the market and provide support to Yen, at least in the short run.

Trade idea 

Sell Pound against yen at current price (186) with stop loss around 188.5-189 area and targets around 180.4, 179 and 176.