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  • GBP/JPY failed to capitalize on the overnight bounce and met with some fresh supply on Friday.
  • A strong pickup in demand for the safe-haven JPY was seen as a key factor exerting pressure.
  • The GBP consolidated the previous day’s volatile swings and did little to influence the cross.

The GBP/JPY cross edged lower during the first half of the European trading session and was last seen hovering near daily lows, just below mid-135.00s.

The cross failed to capitalize on the previous day’s goodish rebound of nearly 150 pips from the vicinity of mid-134.00s, or eight-week lows and started retreated from the 136.15-20 supply zone. The downtick was sponsored by a pickup in demand for the safe-haven Japanese yen amid a softer risk tone around the global equity markets.

Concerns about the second wave of coronavirus infections dampened prospects for a sharp V-shaped global economic recovery and dented investors’ appetite for riskier assets. The JPY was further supported by the Bank of Japan’s less gloomy view on the economy following the latest monetary policy update on Thursday.

On the other hand, the British pound lacked any firm directional bias and was seen consolidating the previous day’s volatile price moves. The BoE discussed implementing negative interest rates at the September policy meeting on Thursday. The negative factor was offset by some optimistic Brexit-related comments by the European Commission President Ursula von der Leyen, saying that a trade deal between the EU and the UK is still possible.

From a technical perspective, the overnight slide confirmed a near-term bearish break through a one-week-old trading range. This coupled with the pair’s inability to gain any meaningful traction supports prospects for a further near-term depreciating move. Hence, a subsequent fall back below the key 135.00 psychological mark, en-route the overnight swing low, around the 134.55 region, now looks a distinct possibility.

Technical levels to watch