GBP/JPY struggles for a firm intraday direction, stuck in a range below 162.00 mark

• GBP/JPY oscillates in a narrow range and is influenced by a combination of diverging forces.
• Fears of a full-blown global banking crisis benefit the safe-haven JPY and act as a headwind.
• The BoJ's dovish outlook should continue to lend support and limit any meaningful downfall.

The GBP/JPY cross struggles to capitalize on the previous day's strong recovery move of over 350 pips from a fresh one-month low and oscillates in a narrow trading band through the early part of the European session on Friday. The cross remains below the 162.00 mark and the recent price action warrants some caution for aggressive traders or before positioning for a firm near-term direction.

The market sentiment remains fragile amid persistent worries about a full-blown global banking crisis, which continues to drive some haven flows towards the Japanese Yen (JPY) and acts as a headwind for the GBP/JPY cross. Adding to this, expectations that the Bank of England (BoE) will pause its rate-hiking cycle sooner rather than later also contribute to capping the upside for the cross. In fact, interest rate futures suggest a 50% chance that the BoE will leave interest rates unchanged next week and an equal possibility of a smaller 25 bps lift-off.

That said, the emergence of heavy selling around the US Dollar benefits the British Pound and lends support to the GBP/JPY cross. Moreover, multi-billion-dollar lifelines for troubled banks in the US and Europe might have eased concerns about widespread contagion, which should keep a lid on any meaningful gains for the JPY and help limit any meaningful slide for the cross. It is worth mentioning that large US banks came to the rescue of troubled First Republic Bank and injected $30 billion into the California, San Francisco-based lender on Thursday.

The development followed Credit Suisse's announcement that it will exercise an option to borrow up to $54 billion from the Swiss National Bank (SNB) to shore up liquidity. Apart from this, growing acceptance that the Bank of Japan (BoJ) will stick to its dovish stance to support the domestic economy supports prospects for some meaningful appreciating move for the GBP/JPY cross. In fact, the outgoing BoJ Governor Haruhiko Kuroda said earlier this Friday that there is room to cut interest rates further into negative territory from the current -0.1%.

In the absence of any relevant market-moving economic releases on Friday, the aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross is to the upside. That said, this week's repeated failures near the 164.00 mark and the lack of any meaningful buying warrants caution before positioning for any meaningful appreciating move in the near term.

Technical levels to watch