Today, the Bank of England released its quarterly inflation report. It lowered inflation and growth forecast, and was therefore a drag on the pound. However, in GBP/JPY this reaction might set up for a buy on the dip set up. Let’s take a look at the 4H chart where we assess a trade plan.
After the BoE inflation report, GBP/JPY retreated from its new high on the year at 184.66. As it pushes toward 181.15, we should anticipate buyers. Let’s say the target is back to 184.60, without expecting a bullish breakout even though the prevailing trend is still bullish and a breakout is very possible. Now, a stop will have to be below 180, ie. 179.50. An entry at 181.20 yields a 340:170 or 2:1 reward to risk ratio.
We can consider averaging in another position if price falls below the 181.15 area as long as it holds above a rising speedline from October. We would get a better reward to risk, but the absolute risk is higher. Still, the absolute reward for a rally to 184.60 would also increase, and by a bigger factor than the risk.
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