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  • GBP/JPY registers three-day losing streak, tests one week low.
  • In addition to the tension ahead of EU-UK Brexit negotiations, Japanese yen’s (JPY) broad strength amid US-Iran tussle also drags the pair downwards.
  • Japan’s Jibun Bank Manufacturing PMI, UK Services PMI will decorate the economic calendar.

GBP/JPY extends its two days’ fall to 140.93 by the early Asian trading on Monday. The pair have recently been dragged by the JPY’s surge over the war-like situation between the US and Iran. Even so, the pair traders’ reaction could have been tamed amid the absence of Japanese traders, who will return to the desk today after a week full of the New Year celebrations.

The killing of the top Iranian military personnel triggered broad risk aversion wave whereas responses from Iran and Iraq fuelled the JPY afterward. The latest headlines suggest the US will “quickly and fully strike back” the Iran-led attack over its targets in Kenya and Baghdad. On the contrary, Iraqi leaders have voted in the Parliament to pus the US militaries out whereas Iran said to have offered $80 million to anyone who brings the US President Donald Trump’s head.

The UK, Germany and France are pushing the Middle East leaders to de-escalate the tension. Though, the UK PM Boris Johnson and Foreign Secretary Dominic Raab seem not to regret the US performance considering General Qassem Soleimani as a threat to the UK.

On the domestic front, the UK’s opposition Labour Party is preparing for a leadership change and will determine the timetable for the election on Monday.

Elsewhere, the EU-UK Brexit negotiations will also begin during the month and will keep the risk tone affected.

While reflecting the market’s risk aversion, the US 10-year treasury yields drop to the month’s low, at 1.767%, whereas S&P 500 Futures also decline 0.42% to 3,222 by the press time.

Markets will now await Japanese traders’ reaction to the latest risk-off. Also directing the short-term moves will be Japan’s December month Jibun Bank Manufacturing PMI and the UK’s Services PMI for the same month.

Technical Analysis

Unless bouncing back beyond a 50-day SMA level of 141.65, the risk of pair’s gradual downside towards 100/200-day SMA confluence near 137.80/90 is high.