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  • GBP/JPY has recovered back from worst levels over the past few hours and currently trades above 139.00 and its 21DMA.
  • UK PM Johnson is set to visit Brussels and speak with von der Leyen on Wednesday in an attempt to break the Brexit deadlock.

GBP/JPY fell briefly below the 138.50 level in early Tuesday trade, but has recovered back above the 139.00 level and its 21-day moving average at 138.89 in more recent trade as traders hunker down ahead of UK PM Boris Johnson’s make or break trip to Brussels on Wednesday. As the Tuesday FX market close approaches, the pair trades with losses of just under 20 pips or around 0.1%.

Boris goes to Brussels and its make or break for Brexit

UK PM Boris Johnson is to go to Brussels to meet with EU Commission President von der Leyen on Wednesday for talks that will be seen by GBP traders as make or break for stalled trade deal discussions. Progress at the “political level” (i.e. directly between Johnson and von der Leyen) would allow for a continuation of talks over the coming days, said UK government sources.

Wednesday’s crunch talks could yield a breakthrough but hopes for a deal remain in the doldrums since tunnel negotiations failed over the weekend. Officials on both sides of the English Channel have been sounding much more downbeat on the chances for a deal and EU Brexit Negotiator Michelle Barnier reportedly told a meeting of EU ministers that the chances of a deal are now “very slim” on Tuesday morning.

With deal hopes having taken a significant blow in recent days, any major breakthrough at Wednesday’s Johnson/von der Leyen meeting is likely to be greeted with jubilation and GBP/JPY is likely to be able to test recent highs above 140.50. Given downbeat expectations, the pair’s negative reaction is likely to be somewhat less pronounced, though GBP/JPY could well slump back beneath the 138.00 level.

GBP/JPY likely to test bounds of recent range on Brexit developments

Since breaking above the 137.00 level convincingly in early November, GBP/JPY has largely respected a low-137.00 to low-140.00 range. Depending on what happens on Wednesday with Brexit talks, the pair is likely to test either the upper bounds of this resistance (on breakthrough) or the lower bounds (on breakdown).

GBP/JPY four hour chart