GBP/JPY pulls back after the trade headlines flashed a gap-down

• GBP/JPY posted a bearish gap at the week-start in reaction to the US-China trade tussle.
• Investors now await Tokyo open, Japanese Leading Economic Index and Brexit headlines for fresh impulse.

Having flashed a week-start bearish gap to 128.82, and the following drop to 128.20, GBP/JPY rises to the intra-day high of 128.83 by the press time of early Monday morning in Asia.

The risk tone slumped at the day’s beginning as investors reacted to the US-China trade war escalation. Adding further weakness to the pair could be the blame-game between the EU and the UK, as far as the no-deal Brexit is concerned.

The US President took harsh measures to increase tariffs on China’s $500 billion worth of goods and also pushed the US companies to leave the dragon nation after the Asian economy announced levies on the US goods of $75 billion.

The UK’s Prime Minister (PM) Boris Johnson turned down the EU Council President, Donald Tusk’s comments that the Union is willing to help the UK, although not in the case of a no-deal.  Market pessimism surrounding no-deal also escalated after the news crossed wires that the PM Johnson is on a run to take advises as to how can close the Parliaments for five weeks to have a smooth no-deal Brexit.

Recently, the UK PM Johnson said, as per the Guardian, that the UK would not owe a divorce bill in a no-deal Brexit, which in turn increases the odds of a no-deal Brexit as the EU insists the same.

Even so, traders are now waiting for Tokyo open for fresh impulse as speculations mount that the Japanese policymakers might react to the latest run of the Japanese Yen (JPY). Additionally, Japan’s Leading Economic Index for July and Brexit related headlines will keep fuelling momentum.

Technical Analysis

An area including August 12 high and lows marked on August 14-15 around 127.52/47 seems to offer strong downside support ahead of monthly low near 126.50. Alternatively, 21-day simple moving average (SMA) level of 129.20 can limit near-term upside of the pair, a break of which will highlight 130.00 for buyers.