We have argued that the road to an orderly Brexit remains arduous and that sterling has entered an important technical area ($1.2500-$1.2530). At the same time, we see the dollar as having approached the upper end of its broad trading range against the yen. One of the important drivers lifting the dollar was the dramatic rise in US yields. We saw that move as countertrend and yields are headed lower again.
GBP/JPY
These views could be expressed in a short-sterling, long yen position. The cross posted a key reversal before the weekend by making a new high for the move and then closing below the previous day's lows. The technical indicators failed to confirm the new high and the RSI (nine-day) has turned lower. The MACDs and Slow Stochastics are poised to turn lower from extreme levels.
Sterling is trading near JPY133.50 as this note is penned. A conservative target is JPY132.15-JPY132.30, but if our analysis is correct, there is potential toward JPY130-JPY131. The JPY134.25 area should provide a nearby cap.