It dips near two-week lows, around 154.50

• The GBP JPY came under heavy selling pressure in reaction to the incoming Brexit headlines.
• The formation of a bullish pennant pattern supports the prospects for some buying on the dips.
• A convincing break below 154.50 is needed to nullify the constructive setup.

The crossing GBP/JPY witnessed a dramatic turnaround on Wednesday and fell nearly 85 pips from the intraday swing highs, around the 155.30 region. Bearish momentum dragged the cross to two-week lows, around 154.50 in the last hour.

The sharp intraday decline was sponsored by some strong selling around the British pound in reaction to the latest Brexit headlines. European Commission Vice President for Interinstitutional Relations and Foresight, Maroš Šefčovič, reiterated that the EU will react quickly if the UK takes any unilateral action on border controls.

Aside from this, speculation that the UK could delay plans to end the restrictions entirely on June 21, amid the spread of the so-called Delta variant, acted as a headwind for the British pound. This, coupled with a strong recovery in demand for the safe-haven Japanese yen, put additional downward pressure on the GBP / JPY cross.

From a technical perspective, the GBP / JPY cross was last seen hovering near the support marked by the lower bound of a short-term descending channel. Given the recent strong positive movement, the aforementioned trend channel appeared to constitute the formation of a bullish continuation pattern on the short-term charts.

The constructive setup is bolstered by the fact that the technical indicators on the daily chart, while losing positive traction, are still in bullish territory. With that said, a convincing break below the trend channel will negate the positive outlook and trigger some aggressive technical selling.

The GBP / JPY cross could extend its corrective pullback from multi-year highs and accelerate the slide to test the 154.00 level. Some subsequent selling has the potential to drag the cross further towards the next relevant support near the 153.25-20 horizontal zone en route to the 153.00 level.

On the other hand, the key psychological mark of 155.00 now seems to act as an immediate hurdle. A sustained move further will reaffirm the bullish flag pattern and push the GBP / JPY cross towards trend channel resistance, currently around 155.50.

4 hour chart

Technical levels