- GBP/JPY turned lower for the second consecutive session on Monday.
- A combination of supporting factors should help limit any further losses.
- Investors now await the BoE policy decision for some meaningful impetus.
The GBP/JPY cross retreated around 65-70 pips from the early European session swing highs and dropped to multi-day lows, near the 152.20-15 region in the last hour.
The cross struggled to capitalize on its intraday positive move, instead met with some fresh supply near the 152.85 region and drifted into the negative territory for the second successive day. With the latest leg down, the GBP/JPY cross has now retreated over 150 pips from the 153.45-50 supply zone, though a combination of factors might help limit the downside.
The worsening COVID-19 situation in Japan, along with a generally positive tone around the equity markets might undermine the safe-haven Japanese yen and lend some support to the GBP/JPY cross. In fact, Japan's COVID-19 infections surged to record highs, which, in turn, forced the government to declare a state of emergency in six areas, including the capital city of Tokyo.
Conversely, the declining trend in the Delta variant infections in the UK, along with positive Brexit development continued acting as a tailwind for the British pound. Britain reported 24,470 new cases of COVID-19 on Sunday, down from 26,144 on Saturday. Moreover, the European Union has decided to pause legal proceedings against the UK over the Northern Ireland protocol dispute.
Investors might also refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of the Bank of England (BoE) meeting on Thursday. This further makes it prudent to wait for some strong follow-through selling before confirming that the GBP/JPY cross has topped out in the near term and positioning for any meaningful depreciating move.
Technical levels to watch
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