Sell GBP/JPY, Target 182, Spectra Markets’ Brent Donnelly Says

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Traders should sell into the mid-week rebound in GBP/JPY because Sterling could be susceptible to any fresh weakness in global markets, which would also benefit the Yen, according to Spectra Markets’ Brent Donnelly.

“I like short GBPJPY as GBP is one of the weakest links in this risky asset rally,” said Donnelly, president at Spectra Markets and a veteran of a career spent between hedge funds and major banks like HSBC, Nomura and Lehman Brothers.

“Much as CAD showed incredible strength when stocks were collapsing, GBP is showing tremendous weakness now. The 5-day moving averages are right here (187.60/80) and this looks like a good entry point to position for a return to equity weakness and JPY strength,” he wrote in a Wednesday note to clients.

GBP/JPY rallied more than two percent on Wednesday after an influential Bank of Japan official appeared to rule out further increases in Japanese interest rates due to recent global market volatility that saw the NIKKEI 225 fall by a double-digit percentage on Monday, and led the Japanese Yen to rally broadly in late July.

Above: GBP/JPY shown at daily intervals alongside GBP/USD. Click image for closer inspection.

Donnelly cites his own statistical research using more than two decades of price data for periods when the NASDAQ index has fallen on a Thursday and Friday, before declining a further two percent in a Monday session as it did over recent days. The bearish call on the outlook for tech stocks has implications for GBP/JPY.

His expectation that risky assets will revert to the downside ahead of the weekend is encouraged in part by recent political polling showing Democratic Party presidential candidate Kamala Harriss eating away at former president Donald Trump’s polling lead.

“This is bad for stocks and all debasement trades (as I have discussed many times) because the MMT on steroids fiscal approach is not guaranteed to be delivered by a Harris government,” Donnelly said.

“Short GBPJPY here (187.00) with a stop at 190.61, looking for a return towards 182.00. One could also make the argument for long USDMXN with a stop at 18.94 as MXN, like GBP, hasn’t strengthened all that convincingly or impulsively, either,” he added.

Above: GBP/JPY shown at daily intervals alongside NIKKEI 225 stock index. Click image for closer inspection.