GBP/JPY: Bulls step up to challenge Brexit risk as US stocks pick up

GBP/JPY has struggled to maintain the bid considering a hard Brexit is very much a factor.

The yen is weaker as the Fed put plays out (risk-on) and the dollar, stocks and US yields pick up a bid on strong US data. 

GBP/JPY is likely to be a key focus as Brexit headlines continue to roll in following the UK Parliament looking to the EU for concessions on the backstop. The latest there is with the Alternative Arrangements Working Group that will meet on Monday hoping to find another way of avoiding a hard Irish border. Technology could be the answer although the Irish PM said that the UK was reviewing ideas that had "already been rejected".

The alternatives that UK PM May will discuss with the EU include, according to BBC news, are:

• a "trusted trader" scheme to avoid physical checks on goods flowing through the border;
• and a "mutual recognition" of rules with the EU.

Home Secretary Sajid Javid said that the "existing technology" could be used instead and speaking on the BBC's Andrew Marr Show, he said: "I asked Border Force months ago to advise me to look at what alternative arrangements are possible and they've shown me quite clearly you can have no hard border on the island of Ireland and you can use existing technology - that is perfectly possible...The only thing that's missing is a bit of goodwill on the EU side."

Elsewhere, the yen is soft on the risk-on Fed-put trade, as markets cheer the neutral tone, allowing for stocks to rise, making for a risk-on environment backed up by solid US data fundamentals following last week's ISM and jobs data. Should there be any positive progress with Brexit negotiations, GBP/JPY could fly in such an environment. However, the BoE could be a spanner in the works this week. 

"The MPC is likely to shy away from any major changes of view, with Brexit and the annual update to potential supply assumptions likely to remain unchanged. Effects from a weaker global backdrop on GDP should be offset by the impulse from the November Budget, but an upward sloping futures curve might yield higher inflation forecasts at the two- and three-year points," analysts at TD Securities argued. 

GBP/JPY levels

Bears crossed over the regression channels midpoint and have taken the price to test below the pivot en-route for the 23.6% retracement of the 2019 incline. Should the pound lose traction, the cross can likely find support there with the confluence of the 50-D SMA at 141.55. The topside is capped by the 100-D SMA at 144.22.