The GBP/JPY pair, which forex traders call “Geppy” and “The Beast,” is seen as a good indicator of the health of the global economy. These different currencies show a lot about the health of the economies and how decisions are made in both the Asia-Pacific region and Western Europe.
But traders shouldn’t let the fact that GBP/JPY is used as an economic indicator trick them into thinking it’s a safe pair for beginners to start with. Even though the pairing’s volatility is great for making money, it also puts forex traders at a lot of risk. Because of this, “Geppy” is known as one of the most dangerous forex pairs.
It is possible to make money trading “The Beast,” but traders should be careful and learn all they can about how complex this forex offering is.
Why people love the GBP/JPY pair
Traders like the GBP/JPY pair for a number of different reasons. But its historical volatility is by far the biggest reason. This is because it causes big price swings that traders can use to make money on open positions, often in a short amount of time.
When a currency pair with a high yield, like GBP, is paired with a currency with a low yield, like JPY, this creates a dissonance that can be used to make a carry trade. In this strategy, traders borrow money from a currency with a low yield to buy a currency with a higher yield. They can then make money by moving money around and taking advantage of yield differences. GBP/JPY is a great pair of currencies for traders who want to try this strategy.
This currency pair is called “The Beast” because prices move quickly and in large ranges. Even though it can make a lot of money, there is also a chance of losing a lot of money.
The good things about trading “The Beast”
As was already said, the GBP/JPY pair’s volatility gives traders a natural and recurring chance to make money. Both of these currencies have a lot of trading volume and are heavily affected by economic news from both countries. This can help any trader who bases their trading strategy on event-based data points.
GBP/JPY can be traded in a lot of different ways, such as long and short positions, carry trades, and contract-for-difference (CFD) trading.
The pairing is also great for traders who like to pair large, stable currencies with smaller, more active currencies. In this case, GBP is the larger and more stable side of the pairing. When combined with JPY, it makes for more movement and data variability as traders try to predict trading opportunities that will be profitable.
Trading “The Beast” Could Be Dangerous
As a key economic link between major economies in different parts of the world, the GBP/JPY pair is very volatile and hard to predict or track with traditional triggers or indicators.
Due to this high risk, GBP/JPY is almost never a good choice for traders who are just starting out. To make an educated guess about how the pair’s price will move, traders need to use complex trade evaluation techniques. Only time and practice will give traders the skills they need to analyze these possibilities with any sense of accuracy. Even experienced traders have trouble coming up with a reliable way to look at indicators and decide when to trade. This is mostly because the traditional triggers that have worked well with other currency pairs are hard to use with GBP/JPY.
With CFD trading, the risks are even higher because a leveraged position can quickly lead to huge losses that are much bigger than your account balance. This is especially true if you use a brokerage that doesn’t protect you against negative balances. Most traders know that CFD trading is dangerous for any pair of currencies, but GBP/JPY makes the risks even worse.
Carry trade strategies are the same. Even though a carry trade isn’t as risky as CFD trading, it can still leave you open to economic events and trends that go against your plan and cause your trading account to lose a lot of money.
Which GBP/JPY Trade Indicators to Watch How Energy Commodities Affect the Market
GBP/JPY can be affected by the usual things that cause currency prices to change, like economic reports, policy announcements from both the Bank of England and the Bank of Japan, and political news. But it can be hard to figure out what this news might mean for the price because these triggers don’t affect GBP/JPY the same way they do for other pairs.
The role of energy commodities for both Great Britain and Japan is one of the more reliable factors that affects prices. Great Britain is one of the world’s biggest exporters of crude oil, but Japan is one of the biggest importers of that product and the second-largest importer of natural gas. JPY tends to go up or down with changes in the price of energy around the world.
When prices for crude oil or natural gas drop, like they did at the end of 2014, it can hurt the value of the GBP while helping the JPY. When both of these things happen at the same time, the GBP/JPY exchange rate can change quickly and dramatically.
Rates of interest
Interest rates have always been high in the UK, while rates in Japan have been either zero or negative for the last two decades. Because of this, the carry trade, which is when you have long positions in GBP and short positions in JPY and hold them overnight to get positive swap interest, is very popular. This can be a good strategy, but if there is a lot of short-term volatility, the positions held can be easily lost. January 2019 was the last time this happened.
Some other technical signs
When trading GBP/JPY, economic events and reports are especially helpful. This is because the JPY tends to be affected by economic events in Japan. But you can and should also use other technical indicators in your trading plan.
Some common ways to use GBP/JPY indicators are:
- Stochastic oscillator: Because “The Beast” is so volatile, price swings often move into “overbought” or “oversold” territory. You can use the stochastic oscillator to find these situations and open a position in the hope that prices will soon move in the opposite direction.
- Moving averages: If you plot two different moving averages on the GBP/JPY chart, you can trade based on when these two lines cross. Depending on how long you plan to trade, a common way to use moving averages is to plot the 21-day exponential moving average (EMA) and the 50-day EMA on the GBP/JPY chart. When the 21-day line is above the 50-day line, long positions are more likely. When the 50-day EMA is above the 21-day EMA, on the other hand, short positions can be thought about.
- Moving average convergence-divergence (MACD): Even a trader who is just starting out can see that Geppy’s price is likely to change over time and do many reversals. But how can you tell how long a price swing will last? This is where MACD can help: It can help you judge and predict price momentum so you don’t give up on a position too soon when the value and profits are expected to keep going up for a long time. On the other hand, it can help you figure out when to get out of a position before the momentum changes.
How to Know When to Trade
Because Japan and Great Britain are on different time zones, economic reports and other news that affects the market rarely come out at the same time in both countries. There is, however, a three-hour overlap between the Asian and European markets, from 5 a.m. to 8 a.m. GMT, during which JPY has historically had the most buyers and sellers.
Between 9:30 p.m. and 3 a.m. GMT, important economic news can also come out of Japan. Traders should keep an eye on what’s happening in the news right now so they can figure out how prices might move before European traders wake up and try to get in on the action. Some experts also say to keep an eye out at certain times of the day, like 6:30 p.m. and 3 a.m. GMT, when official news from Japan tends to come out.
Prepare your game plan.
GBP/JPY is one of the forex pairs with the most risk and reward. Even though traders will probably be attracted to the profit potential, they should wait to trade this pair until they have more experience analyzing charts and indicators and are sure they can analyze GBP/JPY and carry out a trading strategy.