GBP/JPY licks its wounds around mid-165.00s with eyes on Brexit, UK data and BOE

• GBP/JPY consolidates the biggest daily fall in a month, probes two-day downturn.
• Risk-off mood joins Brexit, UK political woes to exert additional downside pressure.
• BOE vs. BOJ divergence keep buyers hopeful as Japan policymakers showed readiness to intervene.
• UK’s monthly data, Brexit news will direct immediate moves, risk catalysts are the key.

GBP/JPY stays defensive around 165.60-55 during Monday’s Asian session, after falling the most in a month the previous day. The pair’s latest inaction could be linked to the market’s anxiety ahead of the key data/events lined up for publication. However, bears remain hopeful as sour sentiment joins Brexit woes.

The market’s risk-off mood gained strength on Friday after the US inflation data rose past market expectations and propelled the case of the Fed’s aggression. That said, the headline US Consumer Price Index (CPI) rose to 8.6% YoY versus 8.3% expected while the Core CPI jumped 6.0% YoY compared to the expected drop to 5.9% from 6.2% a month earlier. It’s worth noting that the record low of the University of Michigan Consumer Sentiment Index for June, to 50.2 versus revised down 58.1, couldn’t stop the US dollar bulls.

Additionally, weighing on the sentiment is a blast in covid numbers in Beijing, as well as an increase in Shanghai’s virus figures, not to forget the Sino-American tussles over Taiwan.

On the other hand, Japanese policymakers held a top-tier discussion over global markets and the yen on Friday. Following the meeting, Japan’s top currency diplomat Masato Kanda said, “We will take appropriate action if needed,” adding that “there are various options in mind.”

Also exerting downside pressure on the GBP/JPY prices are the latest Brexit woes and concerns over political instability in the UK, not to forget the lack of trust in the Bank of England’s (BOE) capacity to tame inflation and avoid recession.

Talking about the latest Brexit development, UK Foreign Secretary is up for presenting a Bill to edit a part of the Brexit deal, relating to the Northern Ireland Protocol (NIP), to the British House of Common on Monday. In addition to the European Union’s (EU) clear signals to retaliate against such moves by harsh measures, chatters that the European judges to be stripped of Northern Ireland protocol powers under new Brexit law, backed by the UK Telegraph, also amplify Brexit concerns.

Further, Tory rebels are trying hard to oust UK PM Boris Johnson and may use the latest Brexit bill for their purpose. However, a lack of clarity over the successor and Johnson’s Brexit aggression seem to help Johnson keep the throne, as per the market’s rumors.

Above all, BOE vs. BOJ divergence seems to defend the GBP/JPY prices ahead of today’s monthly Gross Domestic Product (GDP) for April, expected 0.2% versus -0.1% prior, as well as Manufacturing and Industrial Production data, not to forget the UK’s trade numbers for April. Should the scheduled data print expected improvement, the GBP/JPY pair may witness intermediate relief. Though, Brexit woes may reverse any corrective pullback on negative announcements.

Technical analysis

Failure to provide a daily closing beyond April’s high near 168.45 seems to direct GBP/JPY bears towards highs marked in March and late April, respectively around 164.65 and 164.25. However, a convergence of the 50-DMA, 20-DMA and monthly support line, near 162.70, appears a tough nut to crack for the pair sellers.