2016.05.1701:21:00UTC+00Fxwirepro: Pound Likely to Drop 500 Pips Against Yen if It Fails to Clear 159

Pound is likely to face the fury of fear, surrounding Brexit, as the referendum closes in. There isn’t much economic data or news that bulls can chew to keep up. Pound is likely to face next rounds of selloffs as early as next week, when June 23rd referendum will get included in one month option for the first time.

We expect next round of large position build up in the options market, which could derail the pound bulls from their resolve.

However, there is another factor that has been keeping Pound buoyant and likely to keep supporting and that is the counter trend, especially surrounding Bank of England (BOE) rate hikes. As of now, market is expecting first rate hike from the central bank to come in 2019, almost three years from now, which is most dovish for any central bank, which believes next path more likely to be up than down. In case Brexit doesn’t take place, these rate expectations will see sharp forward movement, pushing Sterling higher.

But still fear is more likely to reign. So bulls need to push higher especially against currencies like Yen, where traders are looking into signals from G-7 leaders over their assessment of Yen, for the next move. That two day meeting will begin on Friday. Moreover any uncertainties likely to benefit Yen, even Brexit fear.

Trade idea –

If GBP/JPY, currently trading at 157.8, fails to clear 159.2 area, it is more likely to drop around 500 pips heading into referendum.