GBP/JPY rebounds from the lowest level since October, back above 151.00 mark

• GBP/JPY struggled to capitalize on its early uptick and met with a fresh supply near the 152.00 mark.
• Brexit-related uncertainties continued weighing on the sterling and exerted pressure on the cross.
• The risk-on impulse in the markets undermined the safe-haven JPY and helped limit further losses.

The GBP/JPY cross dropped to the 150.70-65 area, or the lowest level since October 4 during the early European session, albeit quickly recovered a few pips thereafter. The cross was last seen trading above the 151.00 round-figure mark, nearly unchanged for the day.

The cross gained some positive traction during the early part of the trading action on Monday, albeit struggled to capitalize on the move and met with fresh supply in the vicinity of the 152.00 mark. Persistent uncertainties surrounding the Northern Ireland Protocol and the worsening row over the fishing rights between France and Britain continued acting as a headwind for the sterling. This, in turn, was seen as a key factor that exerted some pressure on the GBP/JPY cross, though a combination of factors helped limit deeper losses.

Firming expectations for an imminent interest rate hike by the Bank of England in December held back traders from placing aggressive bearish bets around the British pound. Apart from this, the risk-on impulse in the markets undermined the safe-haven Japanese yen's relative safe-haven status and extended some support to the GBP/JPY cross. Despite the detection of a new vaccine-resistant COVID-19 variant, the repricing of the likely timing of the Fed's rate hike move triggered a short-covering move across the global equity markets.

The combination of diverging factors warrants some caution for aggressive traders amid absent relevant market moving economic releases from the UK. That said, Friday's sustained break below the very important 200-day SMA supports prospects for an extension of the recent sharp pullback from over five-year high, around 158.20 region touched in October. Hence, any attempted recovery move runs the risk of fizzling out rather quickly and might still be seen as a selling opportunity, which should cap the GBP/JPY cross near the 152.00 mark.

Technical levels to watch