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We’ve got strong momentum  on GBP/JPY on the session, thanks to Brexit headlines and broad risk sentiment continuing its negative run. With the pair testing a strong support area, will the bulls jump in or will the bears find a way to keep the trend going? 

Intermarket Snapshot

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Fresh Market Headlines & Economic Data:

Oil prices fall on demand fears as U.S. summer driving season ends

Nasdaq falls more than 1% as tech plunges once again, Dow drops 400 points

Optimism Among U.S. Small Businesses Rises in August — NFIB

German exports in July 2020: +4.7% m/m

German Labor cost index rises in the 2nd quarter by 1.9% compared to the previous quarter

French trade deficit fell (-1.1 billion euros after +0.7% in June and +2.4% in May)

GDP down by 11.8% and employment down by
2.9% in the euro area

Italian Retaill trade: Value of sales -2.2% m/m in July; volume dropped by -3.1% m/m

Boris Johnson warned rewriting withdrawal agreement risks ‘huge damage’ to UK as top government lawyer quits over PM’s plans

No-deal Brexit is the most likely outcome of trade talks, former EU chief says

Australia business conditions soften, confidence still fragile: survey

Australian banks to fund government stimulus bill

Japan’s Q2 GDP revised down to annualized 28.1% contraction

Japan’s July household spending falls 7.6% year-on-year

Japan’s economy watcher sentiment in August highest in 11 months

Upcoming Potential Catalysts on the Economic Calendar

U.S. Consumer Credit Change at 7:00 pm GMT
Japan M2 Money stock at 7:50 pm GMT
New Zealand Business Confidence at 9:00 pm GMT
Australia Consumer Confidence at 12:30 am GMT (Sept. 9)
Australia Home loans at 1:30 am GMT (Sept. 9)
China Inflation at 1:30 am GMT (Sept. 9)
Swiss Unemployment Rate at 1:45 am GMT (Sept. 9)
Japan Machine Tool Orders at 6:00 am GMT (Sept. 9)

What to Watch: GBP/JPY

GBP/JPY 1-Hour Forex Chart
GBP/JPY 1-Hour Forex Chart

On the one-hour chart above of Guppy, we can see it’s been a really rough ride for the bulls over the last week as sellers took over big time just under the 143.00 handle. Brexit uncertainty last week was the main driver for the turn in sentiment, and it looks like that theme hasn’t changed this week.

Fresh news from the Brexit front today increased fears of a no-deal Brexit, prompting a near drop on Sterling pairs through the London and U.S. trading session.  This has lead GBP/JPY to the next major support area around the 138.50 – 139.00 area, where the pair seems to be stabilizing at the moment.  So will it break lower or bounce higher?

Well, the U.S. tech sector fallout doesn’t seem to have a bottom at the moment yet, driving broad risk sentiment towards negative further, which means this downtrend still has legs with no major economic updates on the calendar ahead.  The odds of a continued risk-off vibe goes up if the upcoming mid-tier economic updates disappoint.

If the pair can sustain a break below the 138.00 handle, then momentum traders may pile into the pair once again to go for the next support area, possibly around the 136.50 area.

For those bullish, we’ll need to see a positive risk sentiment catalyst (e.g., better-than-expected business sentiment updates, positive updates on COVID-19 vaccines/treatments, the U.S. government closer to a new stimulus bill) before traders are likely to jump into a solid swing move higher. There could be profit taking at these levels for a small bounce, but  without a catalyst, it’s likely to be short-lived.