- A combination of factors did not help GBP/JPY to capitalize on its modest intraday gains.
- Brexit woes and less than rosy expectations from the Bank of England continued to act as a headwind for sterling.
- Risk aversion benefited the yen, which is a safe haven, and capped the cross’s gains.
On Monday, the crossing GBP/JPY attracted some selling around 164.00 and seems to have stopped last week’s nice bounce from the important 200-day SMA support for the time being. Spot prices gave back much of the modest intraday gains and pulled back to the 163-70-163.75 zone during the first half of the European session.
The good result of the elections of the conservative coalition in power in Japan suggests that the ultralax monetary policy adopted by the Bank of Japan will not change. Indeed, Bank of Japan Governor Haruhiko Kuroda reiterated on Monday that the central bank remains ready to take further monetary easing if necessary. This, in turn, was seen as a key factor undermining the Japanese yen and providing a good boost to the GBP/JPY cross on the first day of a new week.
However, the prevailing risk-off environment, represented by a generally weaker tone in equity markets amid rising recession fears, helped limit losses in the safe-haven yen. Aside from this, expectations of the Bank of England taking a gradual approach to raising interest rates and the Brexit woes acted as a headwind for sterling. This, in turn, prevented the bulls from making aggressive bets and limited the GBP/JPY cross.
Investors also remain concerned that the British government’s controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union. This suggests that the path of least resistance for the GBP/JPY cross is to the downside. That said, a repeated bounce from a technically significant 200-day SMA warrants bear traders’ caution amid a wide divergence in the policy stance taken by the Bank of Japan and other major central banks.
Technical levels
Source: Fx Street
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