GBP/JPY jumps to fresh daily high on news that Russian troops are returning to bases

• GBP/JPY gained traction on Tuesday and built on the overnight recovery from a one-week low.
• A turnaround in the risk sentiment undermined the safe-haven JPY and provided a goodish lift.
• The UK-EU impasse over the NI Protocol warrants some caution for aggressive bullish traders.

The GBP/JPY cross rallied over 70 pips from the early European session low and shot back closer to the overnight swing high, around the 156.70 region in the last hour.

Following an early dip to sub-156.00 levels, the GBP/JPY cross attracted fresh buying on Tuesday and is now looking to build on the overnight goodish rebound from the 155.30 area, or a one-week low. The latest leg of a sudden spike over the past hour or so could be attributed to a turnaround in the risk sentiment, which tends to undermine the safe-haven Japanese yen.

In the latest developments, Russia said that several military drills have finished and some troops near Ukraine have started returning to bases. This helped ease worries about an imminent Russian invasion of Ukraine and triggered a solid rebound in the equity markets, which, in turn, drove flows away from traditional safe-haven currencies, including the JPY.

On the other hand, the British pound was supported by a more hawkish Bank of England and mostly in-line UK jobs data released earlier this Tuesday. The UK Office for National Statistics reported that the number of people claiming unemployment-related benefits fell 31.9K in January and the Unemployment Rate held steady at 4.1% during the three months ending December.

That said, tensions over the Northern Ireland protocol of the Brexit agreement might hold back traders from placing aggressive bullish bets and cap gains for the GBP/JPY cross. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent corrective pullback from a multi-month high, around the 158.00 mark has run its course.

Technical levels to watch