GBP/JPY clings to modest gains above 157.00 mark, lacks follow-through

• GBP/JPY attracted some dip-buying on Friday and reversed an early dip to the 156.80 area.
• Upbeat UK PMIs overshadowed dismal Retail Sales and acted as a tailwind for the sterling.
• Stability in the equity markets undermined the safe-haven JPY and further extended support.

The GBP/JPY cross quickly recovered around 50 pips from the early European session lows, albeit lacked any follow-through and was last seen trading with modest gains, around the 157.25-30 region.

Following an early uptick to the 157.65 region, the GBP/JPY cross witnessed some selling in reaction to dismal UK Retail Sales figures that added to signs of weakness in the economic recovery. Against the backdrop of this week's softer UK consumer inflation figures, the data further dashed hopes for an imminent rate hike by the Bank of England in November. This, in turn, was seen as a key factor that acted as a headwind for the British pound.

Investors, however, seem convinced that the BoE will eventually hike interest rates from record lows before the end of this year. This, along with stronger-than-expected UK PMI prints for October, assisted the GBP/JPY cross to attract some buying near the 156.85-80 region, just ahead of weekly lows. The Services PMI rose to a four-month high, while the gauge for the manufacturing sector unexpectedly edged higher during the reported month.

Meanwhile, reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. This was evident from stability in the equity markets, which undermined demand for the safe-haven Japanese yen and provided an additional lift to the GBP/JPY cross. That said, the uptick lacked any strong follow-through and warrants some caution for aggressive bullish traders.

Technical levels to watch