GBP/JPY bounces off weekly low above 131.00 with eyes on UK GDP

• GBP/JPY fails to extend the previous day’s losses ahead of the key data.
• UK BRC Like-For-Like Retail Sales triggered the recent pullback, downbeat card spending ignored.
• UK PM Johnson warned that virus vaccine may never be found, Chancellor Sunak extended retention scheme till October-end.
• Risk-tone sentiment remains heavy amid trade war, virus outbreak fears.

While extending its recovery moves from a four-day low of 131.20, GBP/JPY takes the bids near 131.45 amid the initial Tokyo open on Wednesday. While the recently published UK data seems to have triggered the pair’s U-turn, traders remain cautious ahead of the key British GDP.

UK’s April month BRC Like-For-Like Retail Sales recovered from -1.3% forecast to +5.7%. Even so, the total retail sales remained down 19.1% yearly, marking the worst reading since 1995. It should also be noted that the traders might have ignored the 36.5% drop in the UK’s card spending, as per the Barclaycard, during the same month.

Not only cautious sentiment ahead of the data but the market’s risk-off mood also caps the pair’s bounce. The risk aversion seems to take clues from China’s trade war with the US and Australia as well as fears of another spike in the coronavirus (COVID-19) cases.

In his speech, the UK PM Boris Johnson termed the vaccine as a longer-term solution while also saying that in a worst-case scenario, we may never find a vaccine.

Elsewhere, the BOE policymakers, including Ben Broadbent and Economic Andy Haldane cited fears of the pandemic while showing readiness to act.

Market’s risk-tone stays heavy with the US 10-year Treasury yields declining 2.5 basis points to 0.667% whereas Japan’s NIKKEI down over 1.0% to 29,159 by the press time.

Although risk aversion can keep the pair pressured, UK data-dump for March the preliminary reading of the first quarter (Q1) GDP, will be the key to watch. Concerning this, TD Securities said, “Today we get the output data for March as well as Q1 GDP. For Q1 we estimate a -3.1% q/q contraction (market forecast -2.6%), largely in line with the Bank of England's -3.0% forecast from last week's MPR. However, it's unlikely to cause much market reaction either way as more focus will be on the epic GDP collapse that's expected for Q2. With the UK being one of the last countries to implement a lockdown, it won't be fully reflected until the April data.”

Technical analysis

A confluence of 21/50-day EMA near 132.90/95, followed by 133.00 round-figure, restricts the pair’s immediate recoveries, which in turn keeps the pair directed towards the last-week low near 130.65.