GBP/JPY fades recovery moves below 154.00 amid Brexit, covid jitters

• GBP/JPY holds onto previous day’s recovery moves from weekly bottom.
• EU-UK post last-minute halt to sausage war, Belfast court backs NI protocol arrangements.
• UK refreshes 2021 high of covid infections, EU citizens jam application British portal for settled status as deadline remains intact.
• Japan data came in softer, BOE’s Bailey, UK PMI eyed for fresh impulse.

GBP/JPY refreshes intraday low to 153.56, snapping the previous day’s recovery from weekly low, as markets in Tokyo open for Thursday. The pair seems to bear the burden of the coronavirus (COVID-19) and the Brexit woes while paying a little heed to Japan data.

Japan’s Tankan Large Manufacturing Index eased from 15 forecast to 14, versus 5 prior, whereas the Non-Manufacturing Index reversed the -1 prior with +1. Following the release, an anonymous BOJ official said, per Reuters, “surging raw material costs hurting sentiment among some sectors.”

On the other hand, the covid woes remain dominant in the Asia-Pacific region and probe the optimists. While Australia, unfortunately, led the virus woes, Japan’s Kyodo news said, “The Tokyo metropolitan government on Wednesday reported 714 new daily coronavirus cases, reflecting a sharp rebound in the 10 days since the capital exited a state of emergency and shifted to quasi-emergency measures.” Elsewhere, the UK also reported the highest daily rise of covid cases in 2021 and justifies the EU’s compulsory quarantine for British travelers. Even so, the UK governments aim to quarantine free travel for the double-vaccinated, per The Times.

Talking about Brexit, the UK remains intact on its hard deadline of June-end for European citizens if they don’t apply for settled status. The same jammed the application portal and pushed the government to keep millions in the queue. Alternatively, the Belfast court eased the Brexit talks between the UK and the European Union (EU) by supporting the existence of the Northern Ireland (NI) protocol. On the same line was the news that the UK-EU managed over a three-month extension to tame the sausage war, as well as the German-UK agreement over the post-Brexit defence and foreign policy declaration.

Amid these plays, S&P 500 Futures print 0.18% intraday gains but the US 10-year Treasury yields also rise, up 2.8 basis points (bps) to 1.47%, offering mixed clues for the GBP/JPY traders.

Moving on, the UK’s final reading of activity numbers for June and comments from BOE Governor Andrew Bailey will be the key for short-term GBP/JPY moves. Should Bailey backs Haldane’s latest hawkish comments, the pair may reverse the latest pullback. However, covid and Brexit headlines are important to watch as they can trigger surprises.

Technical analysis

Failure to cross the 50-DMA level of 153.75 drags the GBP/JPY prices to a weekly low near 152.60 but the 100-DMA level of 151.92 could restrict the quote’s further weakness.