GBP/JPY bounces on Brexit optimism but sinks on Trade Doubts

The British pound is the stronger across the board after Conservatives signed a pledge to vote for Boris Johnson’s Brexit deal if he is elected next month.  More polls are also showing the Tories improve their lead against Labour as Brexit optimism is starting to enter high gear again.

GBP/JPY initially road the Brexit headlines to a one-month high, but some trade pessimism from Beijing put a damper on the overall risk appetite of the markets.  The negative trade headlines derailed a couple weeks of mostly positive developments.  CNBC reported that Beijing’s mood is pessimistic about a trade deal, adding that they are troubled after Trump said no tariff rollback.

While initially today’s rally looked like price could break above the 141.00 level, the pound-yen 139-141 trading range seems to be firmly in place.  Pound options volatility also contributed to the loss of momentum with the morning surge.  Traders are betting that we could see the British pound stay in a tight range even after past the December 12^th election.  In the short-term, we could see limited upside for the pound on positive Brexit news.  For GBP/JPY to breakout higher, we may need to see a broad risk rally that would likely depend on a phase-one deal getting finalized.

The prospects of the US and China reaching a final phase-one agreement are high, but the timing is unknown, and markets will get nervous if we don’t see a deal done this side of holidays.  If we see price finally break above the 141 resistance zone, we could see upside momentum target the 143.00 handle.  To the downside, 138.45 remains major support.

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