GBP/JPY struggles for direction, flat-lined around 155.00 mark

• GBP/JPY failed to capitalize on the previous day’s goodish rebound from two-week lows.
• The prevalent risk-on mood undermined the safe-haven JPY and extended some support.
• Brexit/COVID-19 jitters, weaker UK macro data weighed on the GBP and capped gains.

The GBP/JPY cross lacked any firm directional bias and seesawed between tepid gains/minor losses, around the key 155.00 psychological mark through the first half of the European session.

The cross struggled to capitalize on the previous day's strong bounce of over 100 pips from the vicinity of the 154.00 mark, or two-week lows and remained capped below weekly tops. A combination of diverging forces failed to provide any meaningful impetus to the GBP/JPY cross, instead led to a subdued/range-bound price action on the last trading day of the week.

The underlying bullish sentiment in the financial markets – as depicted by a generally positive tone in the global equity markets – undermined demand for the safe-haven Japanese yen. This, in turn, was seen as a key factor that extended some support to the GBP/JPY cross. That said, a softer tone surrounding the British pound kept a lid on any meaningful upside.

Investors remain worried that the UK may delay its plans to end restrictions fully on June 21 in light of the spread of the so-called Delta variant. This, along with mostly disappointing UK macro data, acted as a headwind for the sterling. The monthly UK GDP report showed that the economy expanded by 2.3% in April as against consensus estimates pointing to a growth of 2.4%.

Separately, the UK industrial and manufacturing production data indicated that Britain’s industrial sector recovery faltered in April. In fact, manufacturing dropped -0.3% MoM, while total industrial output came in at -1.3%. This comes amid the EU-UK collision over Norther Ireland protocol, which held bulls from placing any aggressive bets around the GBP/JPY cross.

It is worth recalling that talks between UK Brexit Minister David Frost and European Commission vice-president Maros Sefcovic to resolve differences over the Brexit deal broke up without a breakthrough. In a further escalation of the dispute, the EU warned of swift and firm action if the UK fails to implement its post-Brexit obligations.

This makes it prudent to wait for some follow-through buying before confirming that the recent pullback from the 156.00 mark, or multi-year tops has run its course. Conversely, sustained weakness below the 154.55-50 region will be seen as a fresh trigger for bearish traders and pave the way for some meaningful corrective decline for the GBP/JPY cross.

Technical levels to watch