- GBP / JPY fell for the second consecutive session on Monday.
- A combination of factors offered some support and helped limit losses.
The GBP/JPY it traded with a negative bias throughout the European mid-session and was last seen hovering near the lower end of its intraday range, around 155.50.
The cross extended the previous session’s modest retracement from the 156.00 mark, or the highest level since February 2018, and was down for the second session in a row on Monday. In the absence of a new fundamental catalyst, the overbought conditions on the daily chart triggered some profit-taking amid the weak liquidity conditions due to the holidays. That said, a combination of factors should help limit any deeper losses, rather than help the GBP / JPY cross attract some buying on the dips at lower levels.
The underlying bullish sentiment in financial markets could continue to undermine demand for the Japanese yen as a safe haven. Aside from this, concerns that the recent surge in COVID-19 cases could hamper Japan’s fragile economic recovery could act as a headwind for the JPY. In the latest development, Japan extended a state of emergency in Tokyo and eight other prefectures in about 3 weeks until June 20. Market concerns were bolstered by softer economic data from Japan on Monday.
On the other hand, the British pound could continue to benefit from the optimistic outlook for the UK economic recovery. In fact, UK Prime Minister Boris Johnson recently said that there is currently nothing in the data to delay the plan to end the restrictions entirely on June 21. Additionally, Bank of England lawmaker Gertjan Vlieghe said the central bank could raise rates well until next year if there is a smooth transition from the permit and the economy recovers faster than expected.
Even from a technical perspective, last week’s bullish breakout through a short-term trading range favors bullish traders and supports further earnings prospects. Therefore, any subsequent decline could still be seen as a buying opportunity and remain limited.