GBP/JPY: Trade/political tensions weigh on Brexit optimism

  • GBP/JPY struggles amid contrasting fundamentals.
  • EU leaders’ upbeat comments raise odds of a Brexit deal by October 31 deadline.
  • US-China trade optimism fades, the Middle East contributes to geopolitical tension.

Brexit-positive comments from the EU’s Juncker seems to fall behind recent trade/political pessimism as the GBP/JPY pair remains modestly changed to 135.30 during the early Asian session on Friday.

The European Commission president, Jean Claude Juncker, recently offered a lifeline to the United Kingdom’s (UK) Prime Minister (PM) Boris Johnson by showing readiness to turn down the Irish backstop if Britain has good alternatives. Mr. Juncker also showed optimism towards reaching a deal with the UK by the current Brexit deadline of October 31.

On the contrary, receding optimism concerning the US-China trade deal, as can be anticipated from the US officials’ recent comments, and renewed geopolitical tension in the Middle East weigh on the prices. The Saudi-led coalition recently launched military operation in Yemen.

In case of the economic calendar, Japan’s August month inflation numbers flashed mixed signals. The headline National Consumer Price Index (CPI) lagged behind 0.6% forecast to 0.3% on YoY while National CPI ex-Food and energy grew past-0.5% expectations to 0.6% on a yearly basis.

With only the Bank of England’s (BOE) quarterly bulletin on cards, investors will keep a tab on trade/political headline for fresh impulse.

Technical Analysis

A sustained break above late-July highs nearing 135.70 becomes necessary for the pair to aim for July 09 high of 136.30 and July month peak of 137.80, failing to do so highlights overbought conditions of 14-day relative strength index (RSI) that can fetch the quote to 100-day simple moving average (SMA) level of 134.85 prior to highlighting 133.90/85 support-zone, which comprises lows marked on July 18 and during the current week.

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