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Pound has risen a lot after Employment report especially surprised to the upside this week, which was followed by hawkish comments from Bank of England's (BOE), Monetary Policy Committee (MPC) in parliamentary hearings.
However, two key points to note are,
- According to BOE governor Mark Carney, as of now MPC is not considering rate hike, discussion full scale will begin at turn of the year. This means there are still 3-4 months' time, in which Pound can decline short term, even if fundamental buying sets in.
- According to MPC members, stronger pound is dampening inflation outlook and is a key consideration in policy decision.
On the other hand, Yen has gained considerable ground post FOMC and likely to gain further ground if risk aversion sets in from equity selloffs or weakness in China.
Trade idea -
- Sell Pound at current price (186.3) against Yen, with targets around 182.5 area and stop loss around 188.7 area.
- That's a good 3:5 risk reward ratio.
- Key support lies at 184 area, while 187.5 could pose interim resistance.
