GBP/JPY retreats towards 160.50 despite firmer UK Q2 GDP, upbeat yields

• GBP/JPY picks up bids during the four-day uptrend after final prints of UK Q2 GDP.
• UK Q2 GDP improved to 0.2% QoQ, 4.4% YoY, Current Account deficit shrank as well.
• Yields cheer recession woes, hawkish bias of the major central banks.
• Risk catalysts eyed for further directions, bulls need validation from UK headlines, technicals.

GBP/JPY fails to cheer upbeat UK data as it fades the upside momentum, declining to 160.85 on early Friday morning in London. In doing so, the cross-currency pair also ignores firmer US Treasury yields. The reason could be linked to Japan’s stimulus and the market’s cautious mood.

UK’s final reading of the second quarter (Q2) Gross Domestic Product (GDP) GDP improved to 0.2% QoQ versus -0.1% previous forecasts while the YoY figures increased to 4.4% versus 2.9% prior estimations. Further details suggest that the UK’s Q2 Current Account deficit eased to £-33.768B compared to £-43.8B market forecasts and £-43.875B prior (revised from £-51.3B).

It should be observed that the US 10-year Treasury yields remain firmer around 3.80% during the seven-week uptrend despite reversing from the 12-year on Wednesday.

Behind the firmer yields could be the fears surrounding global recession and the hawkish commentary from the key central banks, including the Federal Reserve, the Bank of England (BOE) and the European Central Bank (ECB), despite the recently downbeat economics and supply crunch fears. Additionally, the chatters over China’s inability to tame recession woes and the UK’s fears of more economic pain due to the latest fiscal policies should have favored the US Treasury yields.

Other than the aforementioned catalysts, headlines suggesting more stimulus from Japan, as signaled by Japanese Chief Cabinet Secretary Hirokazu Matsuno earlier in the day, as well as the upbeat Japan data. That said, Japan reported a decline in the Unemployment Rate to 2.5% in August while Industrial Production reversed the previous contraction of 2.0% with 5.1% YoY growth. Further, Retail Trade also improved to 4.1% YoY compared to 2.8% expected and 2.4% prior.

Looking forward, GBP/JPY traders should pay attention to the risk catalysts, namely the updates surrounding economic transition, the central banks’ moves and the ones from Russia, for clear directions. That said, the yields are likely to keep the pair buyers hopeful should the British policymakers manage to convince markets of their capacity to revive the UK economy.

Technical analysis

A daily closing beyond the 200-SMA, around 160.45 by the press time, enables the GBP/JPY pair to poke the 162.10 hurdle comprising a 13-day-old resistance line and the 21-DMA. That said, the receding bearish bias of the MACD and recently firmer RSI (14) also favor buyers.