- GBP/JPY was one of the worst-performing G10 pairs on Thursday amid a combo of GBP weakness and JPY strength.
- The sell-off has stalled as the pair hits support at the October high, with more significant support levels below.
GBP/JPY was slammed on Thursday, sliding over 150 pips or 1.3%, a move which took the pair below the round 138.00 level from morning highs just shy of the 139.50 mark.
Fundamental stars align for a GBP/JPY sell-off
A combination of UK domestic/Brexit factors contributed to GBP being one of the worst G10 performers on Thursday, while a broader risk-off feel to market tone helped JPY top the G10 table, leaving GBP/JPY as one of the worst-performing major G10 pairings on the day.
Starting with the UK; a combination of further evidence of impasse in Brexit negotiations (a “well-placed” EU source indicated to the BBC that talks are at a stand-still late in Thursday’s European session), disappointing data (September GDP and industrial production data missed expectations on Thursday morning) and perhaps also concerns regarding the relations between the UK and another of its major trade partners, China, all seemed to contribute to GBP weakness. On that latter point, the UK has accused China of breaching the joint UK-Sino Declaration on Hong Kong autonomy, after the Asian superpower implemented new laws on the city that enable Beijing to sack any Democratically elected Hong Kong officials who breach national security laws (the UK sees this as a breach of Hong Kong’s autonomy from the mainland).
Meanwhile, the risk of flows that helped JPY top the G10 performance table on Thursday appears to have been triggered by 1) an unwinding of some of the potentially excessive levels of optimism in wake of Monday’s vaccine news and 2) market’s returning their focus to the worsening state of the Covid-19 pandemic in the US (something which Fed Chair Powell highlighted on Thursday, speaking at the ECB’s annual Sintra event).
GBP/JPY decline eases as pair hits support at October high
The October high at 137.85 is offering GBP/JPY strong support. Indeed, the pace of the sell-off in the pair, if it does continue, is most likely to continue at a slower pace, given that there are further significant levels of support to the downside, including; the 21 October high at 137.66, the 3 November (election night) high at 137.38 and the 50% Fibonacci retracement level from the late October low (at 134.40) to the November high (at 140.30), which sits 137.36.
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