GBP/JPY surges to the highest level since June 2016, around 157.00 mark

The GBP/JPY cross continued scaling higher through the first half of the European session and surged to the highest level since June 2016 in the last hour. Bulls are now looking to build on the momentum further beyond the 157.00 round-figure mark.

The cross prolonged its recent strong bullish trajectory that has been underway since the beginning of this month and gained strong follow-through traction on the last day of the week. This marked the seventh successive day of a positive move – also the tenth in the previous eleven – and was supported by a combination of factors.

The Japanese government – in the October economic report – slashed its view on exports for the first time in seven months and said that the pace of economic recovery is slowing. This comes amid the prevalent risk-on mood in the financial markets, which was seen as a key factor that weighed heavily on the safe-haven Japanese yen.

On the other hand, the British pound was supported by positive Brexit-related development. After days of rising tensions, the European Union agreed to scrap most checks on goods and medicines arriving into Northern Ireland from the rest of the UK. This, along with rising bets for a BoE rate hike this year, acted as a tailwind for the sterling.

The momentum took along some short-term trading stops placed near the previous YTD tops, around the 156.00 mark. This seemed to have prompted aggressive short-covering and further contributed to the strong bid surrounding the GBP/JPY cross. With the latest leg up, the cross has now rallied nearly 800 pips from monthly swing lows, around the 149.20 area.

Meanwhile, technical indicators on short-term charts are already flashing overbought conditions and warrant some caution for bullish traders. Hence, it will now be interesting to see if the GBP/JPY cross continues with its positive move or bulls opt to take some profits off the table heading into the weekend.

Technical levels to watch