GBP/JPY – Buying on a Dip After the BoE Inflation Report

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GBP/JPY - Buying on a Dip After the BoE Inflation Report

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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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.