Daily GBP/JPY analysis

Quoting Plutonite

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...With complexity there comes room for disagreement and chaos among buyers and sellers...

Regards,
-P

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Quoting rav700

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I am a bit new to this pair..........I am looking at T.A and it seems that everything is overbought acc to stochs and RSI on a daily and weekly basis...
I understand at the end of the day the fundamentals run a currency but ....surely overbought is overbought.....I mean we have had a drop to 236 but I dont think that was a true correction....Then when will this pair fall....

A double top formation @241 and now it has been trying for over a month to break the 239.65...without success do they give up....

Also re: gbp\jpy break...how does that affect the gbp and eur...
I am a tic confused......

One more question..? If any experts could advise.....
I have a stop for my order @ 240.38...
An order in at 239.38....Do you think I should increase my stop ....

Any advice would be appreciated
Once again
Thank you

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Quoting gagiul

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Hi Rav,
In my opinion you are mistaking trying to guess the top. This is what I did for many times now and got burned most of the time, even if in the end I was right. Better focus on what market gives you, dont try to forecast it.

In GBP JPY situation, I know, everything looks very strange and probably will fall soon like a rock. But until then, looking at the charts, I still see an uptrend that started from 238.55, so instead of selling at 239.38, u could have bought below and made a profit, instead of praying for it not to go above 239.60.
The trend is still up, until I dont see a daily close below 237 at least, I think buying dips instead of selling tops and outsmarting the market still is the best strategy. Overbought is still not overbought until you see the market clearly falling down. Until now, it didnt.

Hope this helps.

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Quoting Loopy

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My question though, is which currency is it going into? Cable? Euro? Dollars? Looking at the daily charts for these three currencies against the yen, it looks like most of the money is going into the Euro. Its the only one thats been setting YoY highs recently. Are there any reports or indicators that measure this flow of money?

My next question is, once the money has been put into an alternate currency, what happens next? Is most used to buy stock? bonds? Or is just held as cash accumulating interest? Is that why some of you have been watching the stock market indices after the recent inflation reports have come out?

Cable and the Dollar have failed to make YoY highs. Do any of you think of this as a strengthening of the yen? I'd appreciate any insight or thoughts anybody has on this topic. Its really had me confused lately.

Thanks in advance

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Quoting cesarnc

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A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.

Here's an example of a "yen carry trade": let's say a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.

*Not going to mention the source because I was warned by admin by doing so and I don't know if the website I got this would be ok.

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Quoting cesarnc

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A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.

Here's an example of a "yen carry trade": let's say a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.

*Not going to mention the source because I was warned by admin by doing so and I don't know if the website I got this would be ok.

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Quoting Loopy

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So most carry trades involve bonds? Let's say I borrow 1000 yen and change it to Euro's and buy a bond. With the EUR/JPY rate increasing, the value of the original investment is increasing, isn't it? When I pay back back the loan from the Japanese bank (assuming that the exchange rate has increased with regard to euro's.), I should have made quite a bit right? So if the exchange rate turns yen positive, carry trades become very bad to have and people would unload them quickly, no? Is that what happened a few months ago when the Chinese market took a dive?

thanks again!

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Quoting cesarnc

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EXACTLY.

Investors don't expect to make money out of pips in the carry trades, but out of interest rate.

But they don't want the interest rate gains to be overshadowed by loosing pips... So getting out at B/E is a valid option for carry trades, thus stop losses getting triggered is very common.... And fast and furious

However, dips in the carry trades are usualy short lived, because investors want to get back to carry trades as soon as the panic vanishes.

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Quoting Loopy

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So this carry trade phenomenon should last as long as there is a such a big interest rate differential? Even if there is a meltdown, it should just be an excuse to get back into another carry trade at a cheaper price. So does most money flow from Japan to the US? Europe? Considering the interest rate differentials, it seems as if the USD should be gaining more heavily against the yen than the Euro, but in actuality its the other way around. Why could this be?

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Quoting cesarnc

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Euro is in the verge of a rate hike...

And also, there must not be that easy and simple, or everybody would jump in NZDJPY to go carry trade, the largest differential + new rate hikes coming...

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Quoting Loopy

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I wasn't trying to make it sound simple. Sorry if I did. It may be a stupid question, but what is stopping people from jumping on the NZDJPY carry trade?

Again, thanks for taking the time to answer my questions. You've been saving me hours of research.

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Quoting gagiul

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Hi Rav,
In my opinion you are mistaking trying to guess the top. This is what I did for many times now and got burned most of the time, even if in the end I was right. Better focus on what market gives you, dont try to forecast it.

In GBP JPY situation, I know, everything looks very strange and probably will fall soon like a rock. But until then, looking at the charts, I still see an uptrend that started from 238.55, so instead of selling at 239.38, u could have bought below and made a profit, instead of praying for it not to go above 239.60.
The trend is still up, until I dont see a daily close below 237 at least, I think buying dips instead of selling tops and outsmarting the market still is the best strategy. Overbought is still not overbought until you see the market clearly falling down. Until now, it didnt.

Hope this helps.

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Quoting cesarnc

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05:22 a yen buying spree hits the market as rumors of China rate hike runs through the market

See?

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Quoting Loopy

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I understand, but wouldn't that affect all crosses across the board... not just the NZDJPY? I understand if there's no real answer to my question. I'm just wondering if you have anymore insight on the issue. Thanks again.

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