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GBP/JPY surrenders a major part of early gains, holds steady around 136.65 area

  • An offered tone surrounding the safe-haven JPY assisted GBP/JPY to gain some traction on Monday.
  • Persistent Brexit-related uncertainties held bulls from placing aggressive bets and capped the upside.
  • A sustained break below the 200-day SMA should pave the way for a move towards sub-136.00 levels.

The GBP/JPY cross retreated around 30 pips from daily tops, albeit has still managed to hold modest gains, around the 136.70-65 region.

The cross showed some resilience near the very important 200-day SMA and staged a goodish bounce from the 136.30 area. The uptick was sponsored by offered tone surrounding the Japanese yen, though persistent Brexit-related uncertainties capped the upside for the GBP/JPY cross.

Despite the prevalent risk-off mood, the JPY struggled to attract any safe-haven flows amid resurgent US dollar demand. This, coupled with a modest intraday pickup in the British pound provided a modest lift to the GBP/JPY cross during the first half of the trading action on Monday.

The global risk sentiment took a hit on Monday amid growing worries that the continuous surge in new coronavirus cases could hinder the global economic growth. Adding to this, the uncertainty over the next round of the US fiscal stimulus measures further weighed on investors' sentiment.

On the other hand, the GBP traders refrained from placing any aggressive directional bets, rather preferred to wait for fresh Brexit updates. It is worth reporting that the UK and EU resumed Brexit talks last week and were reported to have made some progress on state aid rules.

However, fishing remains a key sticking point. The UK Prime Minister Boris Johnson has insisted on taking back control over its waters, while the EU wants access to the fishing waters. This, in turn, seemed to be the only factor that kept a lid on the GBP/JPY pair's intraday uptick.

From a technical perspective, some follow-through selling below the 136.30 area (daily swing lows) will set the stage for an extension of the recent pullback from the 137.60-65 region. The GBP/JPY cross might then accelerate the fall further towards testing the 135.75 horizontal support.

Technical levels to watch

 

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