GBP/JPY dives to session lows, below mid-135.00s amid Brexit woes

• GBP/JPY witnessed a dramatic turnaround from 200-DMA amid negative Brexit headlines.
• The final UK Manufacturing PMI was revised down and exerted some additional pressure.
• The European Commission President will now make a statement on Brexit at 09:00 GMT.

The emergence of some heavy selling around the British pound pushed the GBP/JPY cross back below mid-135.00s, or fresh daily lows during the early European session.

The cross failed to capitalize on its early uptick, instead witnessed a dramatic turnaround from the vicinity of the very important 200-day SMA, around the 136.65 region. The incoming Brexit-related headlines took its toll on the sterling, which, in turn, was seen as a key factor behind the GBP/JPY pair’s sharp intraday slide of over 120 pips.

According to Reuters, citing EU sources familiar with the matter, the EU and the UK failed to close differences in the latest round of trade talks. The sources further clarified that both sides are split on the issue of state aid and the final consent from the EU side would depend on the withdrawal of the UK’s so-called internal market bill.

The minister handling Brexit divorce issues for Britain, Michael Gove reaffirmed the differences in Brexit talks and said that we are looking at steps to be taken to safeguard borders after Brexit.

The already weaker sentiment surrounding the British pound deteriorated further after RTE reported that the legal action against the United Kingdom is imminent and that a draft “letter of formal notice” has been finalised. The formal notice focuses on a breach of the “good faith” articles of the Brexit withdrawal agreement.

The European Commission President Ursula von der Leyen will make a statement on Brexit at 09:00 GMT this Thursday and announce legal action against the UK.

On the economic data front, the UK Manufacturing PMI was revised down to 54.1 for September from 54.3 estimated previously. The data did little to lend any support to the GBP/JPY cross or stall the steep decline back closer to the overnight swing lows. Some follow-through selling will set the stage for a further near-term depreciating move.

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