GBP/JPY clings to gains just below mid-155.00s, over one-week tops

The GBP/JPY cross held on to its modest gains near the 155.40-50 region, or one-and-half-week tops and had a rather muted reaction to the UK jobs report.

The Japanese yen's relative underperformance comes amid a worsening outlook for the domestic economy. This, to a larger extent, offset concerns about the EU-UK stand-off on the Northern Ireland protocol and prompted some aggressive short-covering move around the GBP/JPY on Monday.

The momentum extended through the first half of the trading action on Tuesday and seemed rather unaffected by the UK government's decision to delay the final stage of easing lockdown measures. In fact, UK Prime Minister Boris Johnson pushed back the timeline from June 21 to July 19.

On the economic data front, the official UK employment rate dropped to 4.7% in April – in line with market expectations – from the 4.8% previous. This was accompanied by stronger wage growth data and a further drop in the number of people claiming unemployment-related benefits.

Meanwhile, the uptick could further be attributed to some technical buying on a sustained strength above the 155.15-20 supply zone. Bulls largely shrugged off the prevalent cautious mood around the equity markets, which tends to benefit the JPY's usual appeal as a safe-haven currency.

From a technical perspective, the GBP/JPY cross was last seen hovering near the top boundary of a short-term descending channel extending from multi-year tops. This constitutes the formation of a bullish flag pattern and a sustained strength will set the stage for further gains.

Market participants now look forward to a scheduled speech by the Bank of England Governor Andrew Bailey. Apart from this, Brexit-related headlines might influence the sterling and allow traders to grab some short-term opportunities around the GBP/JPY cross.

Technical levels to watch