GBP/JPY moves back closer to session tops, around 153.65-70 region

• GBP/JPY attracted some dip-buying on Tuesday and reversed an early dip to the 153.00 mark.
• The risk-on mood undermined the safe-haven JPY and extended some support to the cross.
• COVID-19/Brexit woes might hold bulls from placing any aggressive bets and cap the upside.

The GBP/JPY cross managed to rebound around 60 pips from daily swing lows and was last seen trading with modest gains, near the 153.65-70 region.

A combination of diverging forces failed to assist the GBP/JPY cross to capitalize on the previous day's strong recovery of nearly 250 pips from the lowest level since May 7. The cross witnessed a subdued/range-bound price action and remained confined in a narrow trading band through the major part of the European session. Concerns about the EU-UK stand-off on the Northern Ireland protocol continued acting as a headwind for the British pound and capped the upside for the GBP/JPY cross.

In the latest developments, Maros Sefcovic, a European Commission vice-president, warned in a speech on Friday that a downward spiral in relations could ensue if Britain continues with unilateral action. Adding to this, British Brexit minister David Frost said that we're trying to find solutions on the Northern Ireland protocol but there is not a huge amount of engagement from the EU. Frost further added that the delicate balance in the N. Ireland Good Friday agreement risks being unsettled.

Apart from this, worries that the UK government's decision to extend the last remaining COVID-19 measures could hinder the nascent economic recovery further held the GBP bulls on the defensive. That said, a generally positive tone around the equity markets undermined the safe-haven Japanese yen. This, in turn, was seen as a key factor that assisted the GBP/JPY cross to attract some dip-buying near the 153.00 mark and turn positive for the second consecutive session.

It, however, remains to be seen if bulls are able to capitalize on the move as the focus remains on the upcoming Bank of England meeting on Thursday. Hence, it will be prudent to wait for some strong follow-through buying before confirming that the recent pullback from the 156.00 mark, or multi-year tops touched in May has run its course.

Technical levels to watch