Pound and yen highlight forex movements for CFDs

  • By Harrison Cole

  • January 18, 2019
  • 2:41 am BST

The British pound steadied after suffering more falls in the wake of the historic defeat for UK Prime Minister Theresa May’s Brexit deal this week. The pound, which is also known as the GBP by forex traders, is a popular choice in CFD pairs, and the continuing saga of the UK’s exit from membership to the European Union (EU) has been fuelling much activity over the past two years.

The 432-202 defeat in the House of Commons for May’s deal was the biggest hit that a sitting government has ever taken in the so-called “mother of parliaments,” and what happens next is still as uncertain as it has been at any time since the referendum result showed that most British voters wanted out of the EU.

Bank of England Governor Mark Carney said that the pound’s bounce back showed that investors see a “diminished” risk of the UK falling out of the EU in an unorderly way without firm transitional arrangements in place.

Forex implications 

In forex markets, the movement of one currency often affects others, and the trade in “pairs” is how CFD investors take positions on the price changes that they forecast. For instance, in response to the news about the pound, the euro fell, and the EUR/USD pair dropped 0.10% to 1.1401. The US dollar index measuring its strength against six other major currencies dropped 0.04%.

The Australian and New Zealand dollars, often thought to be risk-sensitive, also fell, as did the Japanese yen, which is usually a safe haven during economic upheavals.

British pound to Japanese yen rate

CFD traders can use the current pound and yen forex movements to highlight the way in which certain situations can lead to results based on previous trends and charts. Despite the latest round of Brexit issues, the pound to yen (GBP/JPY) exchange rate avoided big losses, and much of this is because of the safe haven factor.

Both currencies are known to be attractive to investors for their relative stability in times of uncertainty, even considering the roller coaster that the pound has been since the result of the Brexit referendum. However, while GBP/JPY has weathered the current storm better than some may have expected, the pair only trended around a 139.73 level.

Japanese yen as a safe haven

The yen has been benefiting from more than the uncertainty surrounding Brexit, as other safe haven factors have been playing their part. The JPY is a currency that investors buy as something of a safe bet, so it is no surprise that the other major ongoing global financial uncertainty – the trade war between China and the US – has also been influential in its recent performance.

As the markets decided that recent US-China trade developments offered an optimistic outlook and the likelihood of rate hikes from the US Federal Reserve dwindled for the short term, the US dollar’s sell-off slowed down. This usually means that a slightly stronger demand for the Japanese yen will follow, demonstrating that trends can be extrapolated from historical data and used for taking a position on forex pairs as a basis for successful CFD trades.

Good figures

Japan’s latest financial statistics are also beating forecasts, as the Tertiary Industry Index from November was likely to contract to -0.5% but only saw a -0.3% contraction as further elements came to play on the country’s currency. More forthcoming new major Japanese data is also likely to be influential for the pound to yen exchange rate.

Japanese yen investors will be looking to the speech from Bank of Japan (BoJ) Governor Haruhiko Kuroda and the upcoming December inflation rate report to make up their minds about how well the yen is likely to perform against the pound over the coming weeks. Japanese inflation is still a big concern for many, so if December’s inflation rate turns out to be a disappointment, then the exchange rate may advance sooner rather than later.

Forex uncertainty 

One of the big attractions of forex markets for CFD traders is that they suffer times of uncertainty that provide opportunities for investors willing to take a position on their own reading of events. As Brexit uncertainty consumes the markets and economists and analysts are still unclear as to what will happen in the next few weeks, let alone the next two years, currency pairs are volatile. This means that there is fertile ground for CFD trades.

Japanese candlesticks

When talking about possible pound and yen forex movements, it is worth noting that an updated version of the ancient take on technical analysis known as “Japanese candlesticks” is a highly valued tool for some CFD traders. As many traders claim that the system can confirm trend acceleration or reversal and is relatively easy to use, it is a popular way to apply analysis to forex trades.

The quick pace of forex markets and the idea of trading currency pairs is why CFDs, which are based on the way that prices of any given asset fluctuate, are such a good fit for this particular sector. By using trends predicted by trading signals, forex CFD traders can give themselves an edge. When combined with a news-based approach that considers the swift day-to-day developments in circumstances such as the Brexit affair, the appeal to more “hands-on” investors is easy to understand.