GBP / JPY pulls back sharply amid risk aversion, but finds good support at 152.50

• GBP / JPY retreated sharply on Friday amid a broader slowdown in risk sentiment, but found good support at 152.50.
• The pair could be in trouble next week if risk appetite continues to worsen and breaks key support.

The GBP/JPY it came under pressure on Friday, retreating from the levels seen in the Asian session near 154.50 to a low of 152.50 in late European morning and, in doing so, fell below its 50-day moving average at 153.47. The pair retreated sharply as a result of a broad deterioration in risk appetite due to lockdown concerns in Europe that saw risk-sensitive currencies (such as the British pound) overturned in favor of safe-haven currencies (such as the yen). ).

But the pair found decent support just above 152.50, given that this level also coincides with the previous monthly lows set last Thursday and Friday. Buying interest at 152.50 was likely increased given the proximity to the pair’s 200 DMA, which is at 152.30. Before the close of the forex market on Friday and as trading conditions decline, the pair has managed to rally above the 153.00 level to trade at 153.20, with the 50 DMA for now acting as resistance. At current levels, the pair is trading at around 0.6% losses on the day.

If the European Covid-19 / lockdown news continues to worsen over the weekend, chances are high that the overall market supply for shelters will continue into next week. In this scenario, the GBP / JPY cross may well be at risk of breaking below the 152.00 support and its 200 DMA. From a technical point of view, this would be bearish as there are no more key resistance areas for the market. par up to 149.50.

While the British pound is vulnerable to falling on sentiment, UK national fundamentals, for now, don’t seem to provide too much reason to be bearish. It seems highly likely that in December, the Bank of England will become the first major central bank to start raising interest rates after Covid-19. On Friday, Bank of England chief economist Huw Pill said the burden of proof was on those who wanted to wait to raise rates, not those who wanted the escalation cycle to begin. Central bank policy divergence, therefore, leans in favor of a higher GBP / JPY.

Meanwhile, the Covid-19 situation in the UK is not as dire as in continental Europe. Infection rates in the UK have been broadly stable over the past few months and the launch of the booster vaccine in the country, which has already more than covered the most vulnerable categories, has already been hailed as a success. While the lockdowns may be a story for the EU, they may not be for the UK this winter.