GBP/JPY eases from tops, still well bid around mid-150.00s

• GBP/JPY witnessed an aggressive short-covering move on the first day of a new week.
• A combination of factors undermined the safe-haven JPY and remained supportive.
• A weaker USD benefitted the sterling and provided an additional boost to the cross.

The GBP/JPY cross added to its strong intraday gains and rallied further beyond mid-150.00s through the mid-European session.

The cross witnessed some aggressive short-covering move on the first day of a new trading week and has now recovered over 150 pips from near one-month lows touched on Friday. The British pound found some support from the ongoing US dollar retracement slide from multi-month tops. This, along with an offered tone around the Japanese yen, provided a strong boost to the GBP/JPY cross.

The risk-on impulse – as depicted by a generally positive tone in the equity markets – weighed on the safe-haven JPY, which was further pressured by the worsening COVID-19 situation in Japan. In fact, Japan's minister in charge of the coronavirus response, Nishimura Yasutoshi, suggested on Sunday that the government may introduce tougher measures to curb infections under the current law.

The GBP/JPY cross has now recovered a major part of its losses recorded over the past two trading sessions, though the upside is likely to remain capped. Worries about the economic fallout from the Delta variant of the coronavirus might act as a tailwind for the JPY. This might hold bullish traders from placing aggressive bets and keep a lid on any further gains for the cross.

Hence, it will be prudent to wait for some follow-through buying before confirming that the GBP/JPY cross has bottomed out in the near term and positioning for an extension of the recovery momentum. From current levels, any further move up might confront stiff resistance near the 151.00 round-figure mark, which should now act as a key pivotal point for short-term traders.

Technical levels to watch