GBP/JPY plummets after weak UK data

The pound lost ground on Friday and the mentioned GBPJPY cross was trading 0.45% weaker during the US session, hovering at around 139.50.

Traders sold sterling after miserable UK PMIs, which confirmed the UK is quickly heading into a recession. The services sector fell from 50.0 to 48.6 in November, while the manufacturing sector dropped further to 48.3 from 49.6 in October. Both numbers are now below the 50.0 thresholds, suggesting a recession can hit the country over the next months.

Moreover, the mood on the financial markets soured after Global Times tweeted that China wants to work for a "phase-one" trade deal with the US on the basis of mutual respect and equality, and some tariffs rollback is an important condition for a deal. If the US chooses to raise more tariffs and escalates the trade war, China will fight back and retaliate.

This tweet led to some derisking on the financial markets, with the yen preferred in such scenarios. Equities also dipped slightly, but the decline was quickly bought, as usual. The outlook on the SP500 index still seems bullish.

The cross is now quickly falling toward the first strong support of 139.40. If this level is taken out, further decline toward 139.00 could occur, where the major support is located. This level has held many times over the previous weeks and it also marks the lower bound of the six-week consolidation range. Should the pound drop below it, the medium and short-term outlooks would most likely change to bearish and a larger correction might occur.

On the upside, should bulls run to the rescue again, the first intraday resistance might be located near 140.00 and the price needs to clear this zone to start looking bullish again.