GBP/JPY has been moving inside a range for more than a couple of months already and it looks like the pair is gearing up for a short forex setup on the test of resistance at the 173.00 major psychological handle. A strong selloff from this area could lead to a test of support at the 170.00 mark.
Take note though that stochastic is already heading down from the overbought zone, which means that sellers are already starting to pile in. This could lead to an early selloff from its current levels even before GBP/JPY reaches the top of the range.
Shorting at 173.00 with a 100-pip stop and a target of 170.00 could yield a 3:1 return on risk. Adjusting the stop to entry once price tests the middle of the range is a good way to reduce risk.
Forex Setup Recommendations
Only the UK manufacturing production report is up for release today and it might show a weaker 0.4% increase compared to the previous 0.5% gain. An even lower than expected reading might lead to an early pound selloff against its counterparts and a potential short forex setup on GBP/JPY until the 170.00 range support.
On the other hand, a stronger than expected manufacturing production figure could lead to a rally up to the top of the range. Best to wait for reversal candlesticks to confirm the forex setup before shorting with a tight stop.
As for the yen, relatively resilient data from Japan could keep it supported in the near term. Granted that the Japanese economy has posted declines in spending and investment due to the April sales tax hike, officials expect this effect to level off in the coming months, with growth and inflation still projected to pick up.
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