GBP/JPY reverses pullback from 169.00 amid UK’s cautious optimism, fears of Japan meddling

• GBP/JPY picks up bids to reverse early Asian session’s slump.
• Hopes from Rishi Sunak, Japan policymakers’ resistance keep buyers hopeful.
• Softer yields, indecision over Tokyo’s market intervention keep traders worried.
• UK PMIs, politics will be important for fresh impulse.

GBP/JPY remains firmer around 168.50 while reversing the week-start pullback, amid the market’s cautious optimism during early Monday. However, indecision over Japan’s intervention and geopolitical fears challenge the pair’s upside near the key resistance line.

That said, the optimism in the UK amid the higher odds of Rishi Sunak’s likely victory in the race for British Prime Minister. “Rishi Sunak looked set to become Britain's next prime minister after Boris Johnson withdrew from the contest on Sunday, saying that although he had enough support to make the final ballot he realized the country and the Conservative Party needed unity,” said Reuters. The news also quotes Boris Johnson as saying that he had secured the backing of 102 lawmakers and could have been "back in Downing Street", but that he had failed to persuade either Sunak, or the other contender Penny Mordaunt, to come together "in the national interest".

On the other hand, the global rating agency Moody’s negative outlook on the UK, from stable, challenges the pair buyers. Furthermore, Japan’s alleged meddling to defend the falling yen tests the GBP/JPY bulls.

Additionally, the news that North and South Korea exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have challenged the market’s optimism and weighed on the GBP/JPY. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row.

Amid these plays, S&P 500 Futures print 0.50% intraday gains while the US 10-year Treasury yields remain offered around 4.19%, extending Friday’s losses from the 14-year high.

Moving on, UK politics will be in focus but major attention will be given to the preliminary readings for the UK/US PMIs for October.

To sum up, GBP/JPY remains firmer and can extend the run-up on political optimism but Japan’s meddling and challenge to the sentiment could restrict the pair’s upside.

Technical analysis

GBP/JPY again struggles to overcome the six-month-old upward-sloping resistance line, near 169.85 at the latest. That said, the bullish MACD signals and the steady RSI require the bears to remain cautious unless they break the aforementioned support line, around 166.20 by the press time, and conquer the 166.00 thresholds.