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  • Brexit optimism provided a strong boost to GBP/JPY on the first day of the week.
  • The prevalent risk-on mood undermined the safe-haven JPY and remained supportive.
  • Investors turned cautious ahead of the final round of Brexit talks starting on Tuesday.

The GBP/JPY cross quickly retreated over 50 pips from two-week tops, albeit has still managed to hold with strong daily gains, around the 135.70 region.

A combination of factors assisted the cross to catch some aggressive bids on the first day of a new trading week and build on last week’s modest bounce from the lowest level since early July, around the 133.00 mark. The British pound got a goodish lift on the back of the latest optimism that a Brexit deal can be reached.

On the other hand, a strong rally in the equity markets undermined the Japanese yen’s perceived safe-haven status and provided an additional boost to the GBP/JPY cross. The positive momentum took along some short-term trading stops placed near the key 135.00 psychological mark and pushed the cross back above 100-day SMA.

The sterling lost some ground after the UK PM spokesman said that fundamentals have not changed in the EU talks and there are significant gaps. The spokesman added that a Brexit agreement was still possible but the EU must adopt a more realistic policy position. We have consistently put forward proposals on fisheries and subsidies that we feel are straightforward.

This comes ahead of the ninth and final round of Brexit negotiations, starting on Tuesday, which, in turn, kept a lid on any strong gains for the GBP/JPY cross. This makes it prudent to wait for some strong follow-through buying, possibly beyond the 136.50 supply zone, before positioning for any further near-term appreciating move.

Technical levels to watch