GBP/JPY rallies to fresh three-year tops, beyond mid-153.00s

• A combination of factors assisted GBP/JPY to gain strong positive traction on Monday.
• The Scottish election outlook prompted some aggressive short-covering around the GBP.
• The risk-on mood continued undermining the safe-haven JPY and remained supportive.

The GBP/JPY cross added to its strong intraday gains and shot to over three-year tops, around the 153.55-60 region in the last hour.

A combination of supporting factors assisted the cross to catch some aggressive bids on the first day of a new trading week and break out of a near four-day-old trading range. Against the backdrop of worries that the recent surge in COVID-19 cases could hinder Japan's fragile economic recovery, the underlying bullish sentiment continued weighing on the safe-haven Japanese yen. Apart from this, the relief from the outcome of the Scottish Parliament election triggered a short-covering move around the British pound and provided an additional lift to the GBP/JPY cross.

Nicola Sturgeon’s Scottish National Party (SNP) recorded its fourth consecutive victory and won on 64 seats. This, however, was one short of an outright majority and pushed back the risk of a near-term vote on independence. This comes on the back of the optimistic outlook for the UK economy amid the gradual easing of restrictions. The UK Prime Minister Boris Johnson is scheduled to make a statement later this Monday and is set to announce that the plan for reopening the economy remains on track. This further acted as a tailwind for the sterling and remained supportive.

Apart from this, the possibilities of some short-term trading stops being triggered on a sustained move beyond the 153.00 mark further contributed to the strong move up. A subsequent move and acceptance above the previous YTD tops, around the 153.40 area might have already set the stage for additional near-term gains. Hence, some follow-through strength towards the 154.00 mark, en-route the key 155.00 psychological mark, now looks a distinct possibility.

Technical levels to watch