NEWS / Foreign Exchange

GBP/JPY (revisited)

I made a handsome profit recently from betting that the British Pound would break out of a multi-day congestion and appreciate against the Japanese Yen.

I began to gradually build a rather large exposure in the GBP/JPY by taking a long position at market at 234.71 on September 28th - followed by longs added, again at market, in the 235, 236 and 237 price areas - and finally accompanied by a sizable order to buy at the round 238 level which got triggered on October 5th.
With my exposure going deeply into the profit zone, I'd kept my enthusiasm pretty much in check over the period, though. As noted in my letter to clients dated October 8th, '(...) one should take into account the potential impact of an adverse, downward movement against one or more long positions entered recently. Beware, far more than in recent days'.

It only took what in late US afternoon of October 8th I perceived as an early warning sign, for me to dump all long GBP/JPY positions just a few hours later on, in the early European transacting time of October 9th - right at market at 238.39.

As highlighted in my FXstreet.com notes of October 13th, the warning sign actually came to my mind while updating a daily chart of the EUR/JPY instead of the Yen cross pair I happened to be directly involved in.
So I got a few questions about why did I decide to dump all those GBP/JPY longs on behalf of a warning signal which occured in the EUR/JPY.

Basically, the justification lies in the very nature of those long GBP/JPY positions. They were not intended to form a long-term exposure, nor did they attempt to test a notable bottom hypothesis. Those positions stood only as a pure momentum play; while I think I did have a pretty good idea of the current market conditions as they were unfolding several weeks ago, I at the same time knew I could be in those positions only to hit fast and then run even faster. And, in order to achieve that fast exit, I opted for a minimalist way of looking out for early warnings - and therefore, the moment the bullish initiative appeared even slightly compromised in one of the main Japanese Yen crosses, I knew I had to ask myself out of the GBP/JPY.