GBP/JPY surrenders modest intraday gains, bears flirt with 100-DMA support

• GBP/JPY staged a modest bounce from 100-DMA, though lacked follow-through buying.
• Disappointing UK macro data, Brexit jitters, dovish BoE acted as a headwind for the GBP.
• The cautious market mood benefitted the safe-haven JPY and collaborated to cap gains.

The GBP/JPY cross retreated a few pips from daily tops in reaction to disappointing UK macro data and was last seen hovering near daily lows, around the 152.70-65 region.

The cross once again managed to defend and attract some dip-buying around 100-day SMA support, though a combination of factors capped the upside near the 153.00 round-figure mark. Worries that the UK government will trigger Article 16 of the Northern Ireland Protocol and the Bank of England's dovish decision last week acted as a headwind for the British pound.

The sterling was further pressured by the Preliminary UK GDP report, which showed that the economic growth decelerated sharply to 1.3% during the third quarter of 2021. This was also short of market estimates pointing to a reading of 1.5% and was accompanied by weaker-than-expected UK Manufacturing/Industrial production data for the month of September.

Meanwhile, worries about the continuous surge in inflationary pressure tempered investors' appetite for perceived riskier assets. This, in turn, benefitted the Japanese yen's relative safe-haven status and further collaborated to keep a lid on any further gains for the GBP/JPY cross, rather prompted fresh selling at higher levels.

The fundamental backdrop favours bearish traders and supports prospects for an extension of the recent sharp pullback from multi-year tops touched in October. That said, it will still be prudent to wait for a sustained break below 100-DMA support, currently around the 152.55 region, before confirming a fresh breakdown and placing aggressive bets.

Technical levels to watch