• GBP/JPY began the week with a gap-down before portraying a corrective move near two-week low.
• Fears over UK’s recession escalate amid fresh challenges to energy supplies.
• Tory leadership results will be crucial this week.

GBP/JPY stays defensive around 161.20, after beginning the week’s trading with a downside gap of 160.85, as traders struggle for clear directions during Monday’s Asian session. Even so, the mixed mood and concerns surrounding UK politics, as well as the energy crisis, exert downside pressure on the cross-currency pair.

Russia’s permanent break to the EU oil supplies via Nord Stream 1 pipeline joined a pause in the US-Iran oil deal talks to amplify recession concerns and weigh on the GBP/JPY prices of late. On the same line could be the US-China tussles and uncertainty over the UK politics ahead of the Tory leadership results.

After the Group of Seven (G7) nations agreed on capping the price of Russian oil in the international markets, Moscow halted energy supplies to the European Union (EU) through Nord Stream 1 pipeline, citing a ‘leak’, during the weekend. It’s worth noting, however, that Politico ran a story mentioning that Russia’s Gazprom said on Saturday it would increase its shipments of gas to Europe via Ukraine, citing media reports. In addition to the Russia-linked energy problems and a likely recession due to the same, a halt in the US-Iran nuclear talks also amplifies oil woes for the oil continent. “Iran nuclear talks stall again after latest response from Tehran,” said Bloomberg.

On a different page, US President Joe Biden’s administration poured cold water on the face of expectations that the US may ease/remove the Trump-era tariffs on China. “The Biden administration will allow Trump-era tariffs on hundreds of billions of dollars of Chinese merchandise imports to continue while it reviews the need for the duties,” said Bloomberg.

At home, chatters around the energy bill are the key as Liz Truss and Rishi Sunak both hold their breaths for the Conservative Party leadership. Ahead of the results, up for publishing during late Monday, The Telegraph mentioned that Liz Truss is considering freezing energy bills for millions of households this winter if she wins the Conservative Party leadership race.

It’s worth noting that Liz Truss gained more acceptance amid her plans to help via energy bill whereas the ex-Chancellor Rishi Sunak has sound financial knowledge and is popular for the same to defend the economy. However, the latest concern is more prone to the energy crisis and hence a victory of Liz Truss should be cheered by the GBP/JPY buyers.

Elsewhere, an off in the US and Canada might restrict the market moves but recession fears can battle the cautious optimism, especially after the mixed US jobs report, which may entertain traders.

It should be noted that Japan’s second quarter Gross Domestic Product (GDP), as well as the yields amid fears of more divergence between the monetary policies of the Bank of England (BOE) and the Bank of Japan (BOJ), will be important release for the pair traders to watch.

Technical analysis

An upward sloping support line from May 12 restricts short-term GBP/JPY declines near 161.00. The recovery moves, however, need validation from 161.85-90 resistance confluence comprising the 21-DMA and a five-week-old descending trend line.