GBPJPY Trend Setup (August 29, 2014)

Further downside momentum could take the pair down to the previous lows and support zone at the 170.50 minor psychological level. Stochastic is on middle ground but is pointing down, reflecting the potential return of selling pressure.

Shorting at market with a stop above the 173.00 handle and a target of 170.50 could yield a 1.5-to-1 return on risk. Aiming for new lows could improve the reward ratio but it would be prudent to adjust the stop to entry once price tests the previous lows.

Take note though that data from Japan came in mostly weaker than expected earlier today, which could increase the odds of further easing from the BOJ in their monetary policy statement next week. Governor Kuroda recently admitted that weak inflationary pressures could push them to add stimulus while economic analysts have mentioned that the economy could see a deeper slowdown in exports and consumption.

As for the pound, data has somewhat been stable, yet traders are still doubtful that the BOE could start tightening before the end of the year. Signs of improvement in the UK could lead to another test of the GBPJPY trend line or perhaps an upside break and a longer-term reversal.

By Kate Curtis from Trader's Way