GBP/JPY surrenders modest intraday gains, holds above mid-163.00s amid weaker JPY

• A combination of factors failed to assist GBP/JPY to capitalize on its modest intraday gains.
• Brexit woes, less hawkish BoE expectations continued acting as a headwind for sterling.
• The risk-off environment benefitted the safe-haven JPY and capped the upside for the cross.

The GBP/JPY cross attracted some selling in the vicinity of mid-164.00s on Monday and for now, seems to have stalled last week's goodish rebound from the very important 200-day SMA support. Spot prices surrendered a major part of the modest intraday gains and retreated to the 163.70-163.75 area during the first half of the European session.

A strong election showing by Japan's ruling conservative coalition suggests no change to the ultra-loose monetary policy stance adopted by the Bank of Japan. In fact, BoJ Governor Haruhiko Kuroda reiterated on Monday that the central bank remains ready to take additional monetary easing steps as necessary. This, in turn, was seen as a key factor that undermined the Japanese yen and provided a goodish lift to the GBP/JPY cross on the first day of a new week.

That said, the prevalent risk-off environment - as depicted by a generally weaker tone around the equity markets amid growing recession fears - helped limit losses for the safe-haven JPY. Apart from this, expectations that the Bank of England would adopt a gradual approach toward raising interest rates and Brexit woes acted as a headwind for the British pound. This, in turn, held back bulls from placing aggressive bets and capped the GBP/JPY cross.

Furthermore, investors remain concerned that the UK government's controversial Northern Ireland Protocol Bill could trigger a trade war with the European Union. This further suggests that the path of least resistance for the GBP/JPY cross is to the downside. That said, a repeated bounce from a technically significant 200-day SMA warrants caution for bearish traders amid a big divergence in the policy stance adopted by the BoJ and other major central banks.

Technical levels to watch