GBP/JPY has fallen for six weeks in a row
And with the pair breaking below the 130.00 handle as well as support around 128.82, technically there isn’t much stopping price from heading towards the post-Brexit referendum low around 121.61 next.
However, as we all know in markets, nothing ever moves in a straight line. So, let’s weigh up the current factors affecting the pair.
On the pound side of the equation, Brexit uncertainty continues to linger and a threat of a no-deal outcome continues to be persistent for now.
That said, the absence of parliamentary sittings this month is somewhat keeping things from getting worse but also preventing things from getting better – should parliament be able to find a way to block a no-deal that is.
On the yen side of the equation, there’s plenty to keep the currency supported. Rising trade tensions, a slowing global economy, bond yields falling amid central banks easing monetary policy and the BOJ having little ammunition to react are among other things that is helping to underpin the yen over the past few weeks.
The only positives I can think of for the pair to move higher is that pound short positions are rather stretched and that could lead to profit-taking or short covering amid some improvement in the Brexit and global backdrop.
However, all of that should likely be temporary but if you want to consider the scale of the developments, any changes in the Brexit rhetoric will have a sharper/more profound impact on the pair than the factors seen in the yen side of the equation.
The latter will continue to keep the yen underpinned in 2H 2019 but any sudden shifts in the Brexit deal or no-deal proposition will have a massive influence on pound sentiment.
As such, as long as no-deal remains on the table, the pound should continue to see further weakness over the next month. But if we’re headed towards an extension and possibly any outcome steering clear of a no-deal, expect the quid to recover and that is when GBP/JPY may find a significant jump higher in the coming weeks.