GBP/JPY sticks to modest recovery gains, lacks follow-through amid Brexit woes

• GBP/JPY staged a goodish rebound from multi-week lows touched earlier this Friday.
• The British pound witnessed some short-covering ahead of the key UK-EU Brexit talks.
• The cautious market mood benefitted the safe-haven JPY and capped any further gains.

The GBP/JPY cross held on to its modest intraday gains through the first half of the European session, albeit lacked any follow-through buying and remained below the 153.00 mark.

The cross attracted some buying near the 152.35-30 area, or five-week lows touched earlier this Friday and for now, seems to have snapped three successive days of the losing streak. The uptick lacked any obvious fundamental catalyst and could be attributed to some short-covering move ahead of crunch Brexit talks.

The United Kingdom and the European Union are due to enter new negotiations on Friday amid worries that Britain could trigger the so-called Article 16 of the Northern Ireland Protocol. The EU, however, is reportedly prepared to offer more concessions to the UK in a bid to avoid suspension of the post-Brexit trade agreement.

This, along with modest US dollar pullback from 16-month tops acted as a tailwind for the British pound and extended some support to the GBP/JPY cross. That said, the prevalent cautious mood around the equity markets – amid inflation fears – underpinned the safe-haven Japanese yen and kept a lid on any further gains.

Looking at the technical picture, the GBP/JPY cross on Thursday broke through a near one-week-old trading range support that coincided with 100-day SMA. Hence, it remains to be seen if bulls are able to capitalize on the move or meet with fresh supply at higher levels amid absent relevant market moving economic releases.

Meanwhile, the GBP/JPY pair's inability to capitalize on the attempted recovery indicates that the recent bearish pressure might still be far from being over. This, in turn, suggests that any subsequent positive move could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch