Today we want to focus on a bearish seasonal pattern in the GBP/JPY.
The BoJ on September 19 announced the decision to stay at its monetary policy status quo, maintaining the short-term Interest Rate Target At -0.1% and the 10-year JGB yield target around 0%. Later that day, BoJ governor Kuroda pointed to the continuing oversea economic slowdown which leaves further monetary stimulus on the table and the BoJ judging whether such an easing step is needed at the October meeting.
While over the last few weeks, rumours made rounds that the BoJ could consider cutting rates into deeper negative territory, the neutral stance turned such speculations down, leaves JPY with some bullish momentum on its side.
On the other hand, GBP still faces uncertainty in regards to the Brexit with time running out, the Brexit deadline on the October 31 nearing, and leaving Pound Sterling vulnerable to a drop on a broad front.
That said, the seasonal bearish window in the GBP/JPY between September 30 until October 10, which developed over the last 24 years, and puts the advantage in the currency pair also on the short-side.
Seasonal Pattern in the GBP/JPY
The key parameter of this seasonal bearish pattern looks as follows: between September 30 and October 10, the GBP/JPY saw an average drop of 437 pips for 18 of the past 24 years.
In the remaining six years, it gained on average only 178 pips, while the maximum loss and maximum drawdown were 372 pips.
Trade the Seasonal Pattern: the GBP/JPY
And now the key question: how could we trade this?
Here’s the plan:
- After identifying the profitable seasonal window, we sell the GBP/JPY on the closing price of the starting date on September 30 (22:59 CEST).
- We identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the ATR(14) indicator.
>If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case-stop.
>If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
- We Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
- If the trade is not stopped out or it does not reach its take profit within the seasonal period, end the trade market on the closing price on October 10.
Looking at current market data, since the ATR(14) in the GBP/JPY on a daily time frame is currently trading between 140 to 150 pips, while the maximum loss of the window was 372 ticks, our worst-case stop will be placed based on a maximum loss 370 pips away from our entry price.
Meanwhile, the average gain of the seasonal pattern is 437 pips within this period. So, after entering the trade on the closing price of September 30, we would subtract 450 pips to get our take profit level.
Source: Admiral Markets MT5 with MT5-SE Add-on GBP/JPY Daily chart (between July 06, 2018 to September 20, 2019). Accessed: September 20, 2019, at 07:00 GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of GBP/JPY increased by 6.9%, in 2015, it decreased by 4.9%, in 2016, it fell by 18.7%, in 2017, it increased by 5.5%, in 2018, it fell by 8.2%, meaning that after five years, it was down by 19.8%.
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