GBP/JPY moves back closer to overnight swing high, around mid-136.00s

The GBP/JPY cross edged higher during the early European session and refreshed daily tops, around the 136.40 region in the last hour.

Following the previous day's sharp pullback of around 75-80 pips and an early dip to seven-week lows, the cross managed to catch some fresh bids on Tuesday. The uptick was supported by a pickup in demand for the British pound despite growing fears of a no-deal Brexit, especially after the UK's controversial Internal Market Bill passed the first hurdle in the House of Commons.

It is worth recalling that the EU has threatened to pursue legal action against the UK over breach of the Brexit Withdrawal Agreement (BWA) if it doesn’t drop the bill. The EU also signalled that breaking the BWA will lead to a no-deal Brexit. The development added to worries over a hard Brexit, albeit failed to impress bearish traders or prompt any selling around the GBP/JPY cross.

Meanwhile, the GBP bulls took cues from Tuesday's upbeat UK monthly employment details, which showed that the number of people claiming unemployment-related benefits came in at 73.7K as against 100K expected. Adding to this, the previous month's reading was also revised down to 69.9K from 94.4K reported earlier. Meanwhile, the unemployment rate edged higher to 4.1% from 3.9% previous.

On the other hand, the safe-haven Japanese yen was undermined by the prevalent risk-on environment, which remained well supported by the latest optimism over a potential vaccine for the highly contagious coronavirus diseases. The upbeat market mood got an additional boost following the release of better-than-expected Chinese macro data.

It, however, remains to be seen if the GBP/JPY cross is able to capitalize on the move or runs into some fresh supply ahead of this week's key central bank events. The Bank of Japan is scheduled to announce its policy decision on Thursday and will be followed by the Bank of England policy update. This, along with Brexit development will play a key role in determining the GBP/JPY pair's next leg of a directional move.

Technical levels to watch