GBP/JPY defies strong UK PMI, trims recovery gains

The GBP/JPY cross had a muted reaction to the release of UK construction PMI release and remained stuck within 20-pips trading range below 131.00 handle.

Currently hovering near the lower end of the trading range, around 130.75-70 region, the cross has managed to hold in positive territory despite of an intense selling pressure surrounding the GBP/USD major.

The pair's strength on Tuesday could be primarily attributed to the offered tone around the Japanese Yen amid risk-friendly environment as depicted by the ongoing bullish momentum in European equity markets, with UK's FTSE 100 smashing through 7K mark to touch the highest level since late May 2015. 

Meanwhile, a better-than-expected release of UK construction PMI went unnoticed and the cross failed to build on to Monday's recovery momentum from 130.00 psychological mark. UK construction sector returned to growth in September and the Markit/CIPS UK construction PMI rose to 52.3 from 49.2 recorded in August. 

In absence of any fresh economic releases, the cross would continue to be driven by investor appetite for riskier assets, which would derive the safe-haven demand of the Japanese Yen, and additional selling pressure around the British Pound emerging out of any fresh news surrounding the historic Brexit referendum. 

Technical levels to watch

Immediate downside support is pegged near 130.50 level below which the cross could drift back towards 130.00 psychological mark. A convincing break below 130.00 handle would now turn the cross vulnerable to extend its slide further towards its next major support near 129.00 handle. 

On the flip side, a sustained move above 131.00 immediate resistance should assist the pair back towards 131.45-50 resistance area, which if cleared seems to assist the cross to reclaim 132.00 handle and head towards testing its next major resistance near 132.50 region.