GBP/JPY Price Analysis: Flirts with session lows, just above mid-154.00s

• GBP/JPY came under fresh selling pressure on Tuesday and reversed the overnight positive move.
• The formation of a bullish flag pattern supports prospects for the emergence of some dip-buying.
• Sustained weakness below the 154.00 mark is needed to negate the near-term positive outlook.

The GBP/JPY cross struggled to capitalize on its early positive move, instead witnessed a dramatic turnaround from one-and-half-week tops touched. The downfall extended through the mid-European session and dragged the cross to fresh session lows, around the 154.60 region in the last hour.

The UK government's decision to delay the final stage of easing lockdown measures dampen prospects for a rapid UK economic recovery from the pandemic amid the spread of the so-called Delta variant. This, along with concerns about the EU-UK stand-off on the Northern Ireland protocol, acted as a headwind for the British pound.

From a technical perspective, the intraday uptick stalled near a resistance marked by the top end of a short-term descending trend-channel, extending from multi-year tops touched in May. Given the recent strong move up, the mentioned channel constitutes the formation of a bullish continuation flag pattern on the daily chart.

The set-up still seems tilted in favour of bullish traders and supports prospects for the emergence of some dip-buying at lower levels. The constructive outlook is reinforced by the fact that technical indicators on the daily chart – though have been losing positive traction – are still holding in the bullish territory.

Nevertheless, the GBP/JPY cross has now reversed a major part of the previous day's strong move up. Any subsequent decline is more likely to find decent support near the lower boundary of the mentioned channel, currently around the 154.20 region. This should now act as a key pivotal point and help determine the near-term trajectory.

A convincing break below will negate the bullish setup. Some follow-through selling below the 154.00 mark will reaffirm the bearish breakdown and prompt some aggressive technical selling. The GBP/JPY cross might slide further below the 153.70 horizontal support and accelerate the fall towards testing the 153.00 round-figure mark.

On the flip side, the key 155.00 psychological mark now seems to act as an immediate hurdle ahead of the 155.25-30 supply zone. This is followed by the trend-channel resistance, around mid-155.00s, which if cleared decisively will set the stage for additional near-term gains. Bulls might then aim to reclaim the 156.00 mark.

The positive momentum could further get extended and push the GBP/JPY cross towards the next relevant resistance near the 156.60 region, or February 2018 swing highs.

GBP/JPY 4-hour chart

Technical levels to watch