GBP/JPY: Under pressure as Brexit headlines confront risk aversion

Despite witnessing Brexit positive signals, the GBP/JPY pair fails to reverse recent pullback from multi-month high as it trades near 136.60 ahead of the UK open on Tuesday.

Not only Daily Telegraph’s news suggesting the EU and the UK diplomats have a potential solution to the Irish backstop, but the BBC’s report that the EU mulls new emergency summit to facilitate the departure process also should have pleased the British Pound (GBP) buyers.

However, comments from the Japanese Prime Minister Shinzo Abe that the recent typhoon in the Asian nation will have longer-term economic impacts and Chinese officials’ need for further talks before signing a trade deal with the US seems to have gained market attention.

With this, the return Japanese traders from extended weekend triggered risk-off that could also be witnessed in the United States’ (US) 10-year Treasury yields, which is around seven basis points minus at 1.684% by the press time.

Investors will now keep an eye over the United Kingdom’s (UK) employment report while Japan’s Industrial Production for August will grab immediate market attention. While Japanese data is expected to remain unchanged, TD Securities anticipate upbeat employment releases from the UK as it says, “August may see one of the final gasps of strength for the labor market, as we look for the unemployment rate to fall to a new multi-decade low of 3.7% (mkt 3.8%). However, we do look for the strength in job growth to slow in the coming months; the one consistent message from all three UK PMIs for September was that employment has started contracting across all sectors of the economy. For wage growth, we look for headline wages to hold steady at 4.0% y/y, and ex-bonus wages to also come in unchanged at 3.8% y/y. Wage growth is likely to remain elevated for a while, as they tend to follow growth and labor market trends only with a lag.”

Technical Analysis

200-day Exponential Moving Average (EMA) near 137.30 acts as immediate resistance ahead of 138.00. Alternatively, pair’s declines below late-July highs nearing 135.50 can please bears with 134.00 rest-point.