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  • Monday was a modestly positive day for GBP/JPY, with the pair gaining a modest to close above the 148.50 mark.
  • Price action on Monday was subdued compared to the large swing seen in prior days.

Monday was a modestly positive day for GBP/JPY, with the pair gaining a modest 0.2% (30 pips) to close above the 148.50 mark, where it continues to trade as volumes drop off ahead of the start of Tuesday Asia Pacific trade. Monday’s trading range was thin and conditions were rangebound in comparison to recent days; the pair hit fresh multi-year highs above the 150.50 mark last Thursday’s before dropping to lows under 147.50 the very next day, a near 300 pip range. That compares to Monday, which saw pricing swing between a roughly 100 pip range (148.30s-1.4930). Last week’s range is will thus be the key levels of support and resistance to keep an eye on.

Driving the day

Monday was a relatively fundamental catalyst-free session for the most part for GBP/JPY. The UK Press leaked the majority of UK Finance Minister Rishi Sunak’s budget, which is set to be released on Thursday and GBP traders seemed to like what they saw, assisting with modest GBP outperformance on the day versus the likes of the euro and yen. Market commentators continue to attribute vaccine/reopening optimism as supportive for GBP after the UK passed the 20M vaccinations delivered mark over the weekend, though some desks think this optimism is now in the price and more positives will be needed to drive further GBP gains.

Meanwhile, JPY was broadly weighed versus the majority of its G10 counterparts amid the risk on tone to markets as investors focused on positive US fiscal stimulus (the House passed US President Joe Biden’s $1.9T stimulus package and the Senate will vote on it this week) and pandemic news (falling US infections, hospitalisation and deaths and the FDA approving the J&J Covid-19 vaccine), which eroded demand for safe havens (like JPY). Elsewhere, reports this morning suggested that the BoJ is prepared to aggressively defend its target yield range for government bonds. BoJ sources added that the bank could take action prior to the 10-year yield hitting 0.2% and would not allow it to hit 0.3%. The reports did not seem to hurt JPY at the time, but may weigh on the currency versus the currencies where central banks take a less activist approach against rising yields (such as USD and GBP).

Looking ahead, some January Japanese labour market numbers are set for release at 23:30GMT on Monday, but the rest of the week lacks any important data. Meanwhile, the release of the latest UK budget on Thursday will be the main focus of the week.

 

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