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  • GBP/JPY edged lower for the second consecutive session on Monday.
  • A combination of factors extended some support and helped limit losses.

The GBP/JPY cross traded with a negative bias through the mid-European session and was last seen hovering near the lower end of its intraday range, around mid-155.00s.

The cross extended the previous session’s modest pullback from the 156.00 mark, or the highest level since February 2018 and edged lower for the second consecutive session on Monday. In the absence of any fresh fundamental catalyst, overbought conditions on the daily chart prompted some profit-taking amid holiday-thinned liquidity conditions. That said, a combination of factors should help limit any deeper losses, rather assist the GBP/JPY cross to attract some dip-buying at lower levels.

The underlying bullish sentiment in the financial markets might continue to undermine demand for the safe-haven Japanese yen. Apart from this, concerns that the recent rise in COVID-19 cases could hinder Japan’s fragile economic recovery might further act as a headwind for the JPY. In the latest development, Japan extended a state of emergency in Tokyo and eight other prefectures by about 3 weeks to June 20. The market worries were reinforced by Monday’s softer economic data from Japan.

On the other hand, the British pound might continue to benefit from the optimistic outlook for the UK economic recovery. In fact, UK Prime Minister Boris Johnson recently said that there is nothing in the data currently to delay the plan to end restrictions fully on June 21. Adding to this, the Bank of England policymaker Gertjan Vlieghe said that the central bank could raise rates well into next year if there is a smooth transition from furlough and the economy rebounds more quickly than expected.

Even from a technical perspective, last week’s bullish breakout through a short-term trading range favours bullish traders and supports prospects for additional gains. Hence, any subsequent decline might still be seen as a buying opportunity and remain limited.

Technical levels to watch