GBP/JPY holds on to gains around 191.00, bulls look disengaged amid Middle East tensions

• GBP/JPY is regaining positive traction on Wednesday, although it has no further buys.
• BoJ rate hike uncertainty undermines the JPY and provides some support to the crossover.
• Geopolitical risk helps limit deeper JPY losses and keep a lid on further gains for the pair.

The GBP/JPY cross retraces some of the previous day’s losses during the Asian session on Wednesday. However, spot prices remain below the technically significant 200-day simple moving average (SMA) and are currently trading around 191.00, up less than 0.15% on the day .

The Japanese yen (JPY) continues to be undermined by uncertainty over further interest rate hikes by the Bank of Japan (BoJ), which in turn is seen as a key factor lending some support to the GBP/JPY cross. In fact, Japan’s new prime minister, Shigeru Ishiba, said earlier this week that the BoJ’s monetary policy must remain accommodative to support a fragile economic recovery. Furthermore, Ishiba is seeking to secure a national mandate with snap elections on October 27, fueling political uncertainty and putting further pressure on the JPY.

That said, fears of an all-out war in the Middle East escalated further after Iran fired more than 200 ballistic missiles at Israel on Tuesday. This, in turn, is tempering investor appetite for riskier assets, which is evident from a generally weaker tone in global equity markets, and should help limit deeper losses for the safe-haven JPY. Additionally, markets are pricing in another BoJ rate hike by the end of this year. This marks a big divergence from bets for more rate cuts from the Bank of England (BoE) and should limit the GBP/JPY crossover.

In the absence of any economic issues relevant to Wednesday’s market movement, the fundamental context mentioned above calls for caution before placing new bullish bets around the currency pair. Even technically, the 50-day SMA crossed below the 200-day SMA last month, forming a “Death Cross” on the daily chart. Additionally, the GBP/JPY cross has repeatedly failed to find support above the 200-day SMA. Therefore, strong continued buying is needed to support the prospects for a new appreciation move.