GBP/JPY recovers further from multi-week lows, climbs to mid-136.00s

• GBP/JPY staged a goodish bounce and rallied over 100 pips from seven-week lows set this Monday.
• Growing opposition for the UK’s Internal Market Bill prompted some short-covering around the GBP.
• The upbeat market mood undermined the safe-haven JPY and remained supportive of the move up.

The GBP/JPY cross built on its steady intraday positive move and refreshed daily tops, around mid-136.00s region during the mid-European session.

The British pound kicked off a new week on a positive note amid growing opposition to the UK’s so-called Internal Market Bill. Chances that the UK parliament will choose to vote down the legislation, which violates parts of the existing withdrawal agreement, prompted some short-covering around the sterling, which, in turn, assisted the GBP/JPY cross to stage a goodish bounce from seven-week lows.

The cross rallied over 100 pips from the vicinity of mid-135.00s and was further supported by a strong rally in the equity markets, which undermined the Japanese yen's relative safe-haven status. The global risk sentiment got a strong boost amid renewed optimism over a potential COVID-19 vaccine, especially after AstraZeneca resumed the phase-3 trials for its vaccine candidate.

Despite the supporting factors, the upside is likely to remain limited. Investors might refrain from placing aggressive bullish bets amid fears that the UK might crash out of the European Union at the end of the transition period on December 31st. This makes it prudent to wait for some strong follow-through buying before confirming that the GBP/JPY cross might have bottomed out.

Moving ahead, market participants now look forward to this week's key central bank events. The Bank of Japan is scheduled to announce its policy decision on Thursday and will be followed by the Bank of England policy update. This, along with Brexit development will play a key role in determining the GBP/JPY pair's next leg of a directional move.

Technical levels to watch

GBP/JPY