GBP/JPY eases from one-week top towards 139.00 amid cautious markets

• GBP/JPY snaps two-day uptrend, prints mild losses on Tokyo open.
• Japan’s downbeat trade numbers, Brexit woes join the pre-Fed and stimulus cautious mood to weigh the risks.
• Update on US covid aid package, Brexit will be the key while UK CPI, PMIs will also important to watch.

GBP/JPY drops to 139.30, down 0.06% intraday, as markets in Tokyo open for Wednesday’s trading. In doing so, the quote takes a U-turn from the highest since last Thursday as risks turn mildly heavy amid the wait for the key US coronavirus (COVID-19) stimulus updates and the Fed. Also challenging the mood could be the mixed Brexit developments and downbeat trade numbers from Japan.

US Senate Majority Leader Mitch McConnell joins House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin to discuss the much-awaited US aid package. Recent updates suggest that the policymakers are closer to a deal after only two issues left pending for the finalization during the previous talks.

On the other hand, Ireland’s new Taoiseach (Irish Prime Minister) Micheál Martin recently suggested that further clarity over the Brexit deal is expected by the weekend. It should, however, be noted that the Daily Telegraph Reporter Harry Yorke tweeted that he was told Boris Johnson has sent a message of reassurance to the ERG this evening: “Never fear folks we will vindicate the people in full or else as I have said many times we will start the new year World Trade Organizations (WTO) terms!”

Talking about the data, Japan’s Merchandise Trade Total eases below ¥529.8B forecasts to
¥366.8B. Further details suggest that the Imports shrank 11.1% YoY versus -10.5% market consensus while Exports dropped below +0.5% expected to -4.2%.

It should be noted that the vaccine hopes and chatters surrounding the UK government’s push for more stimulus battles the GBP/JPY bears.

Against this backdrop, the risk-tone fades the previous upside momentum. That said, S&P 500 Futures drop 0.10% even as Wall Street benchmarks flashed over 1.0% gains each the previous day.

Looking forward, further developments on the US stimulus will offer immediate direction while the Brexit and the UK/US figures may also offer a busy day ahead. Additionally, Fed-induced volatility can’t be ignored.

Technical analysis

An eight-day-old falling trend line, currently around 139.65, followed by the 140.00 threshold, challenges the GBP/JPY bulls. However, bears are less likely to enter unless witnessing a clear break below 100-day and 50-day SMA confluence around 137.85/80.