GBP/JPY - Risk reversals diverge, hit 5-1/2 week low

• Risk reversals diverge from a rally in the GBP/JPY cross.
• Drop in risk reversals indicate rising demand for GBP puts.

GBP/JPY ran into bids below 50-day MA last Thursday and rose to a one-week high of 153.10 today.

However, the rise in the spot has not revived demand for GBP calls. The GBP/JPY one-month 25 delta risk reversals fell to 5-1/2 week low of -1.20, suggesting rising demand for bearish bets (puts) on GBP.

That said, the recovery in GBP/JPY from last Thursday's low of 150.19 is backed by yield differential. The 10-year UK-Japan yield has risen more than 11 basis points from the Dec. 29 low of 113.8 basis points.

GBP/JPY Technical Levels

As of writing, the currency pair is trading at 152.88. A break above 153.00 (zero levels) would expose 153.41 (Dec. 8 high) and 153.67 (Jan. 8 high). On the downside, breach of support at 152.36 (session low) could yield pullback to 151.19 (Dec. 26 low) and 151.00 (zero levels).