GBP/JPY drops more than 100 pips to 6-week lows

The combination of a stronger yen and a soft pound pushed GBP/JPY to extend the current bearish move. 

JPY up on risk aversion, GBP without strength 

After the release of the US PPI index data for July (-0.1% vs 0.1%), the yen gained momentum amid a rally of US bonds and a sharp decline of USD/JPY. The Japanese currency was already strong in the market amid risk aversion. Equity markets are falling worldwide. 

US: Despite soft PPI, fundamentals point to firm inflation ahead - Wells Fargo

The data from the US reduced expectations of another rate hike from the Federal Reserve before year-end, affecting the US dollar. While other European currencies were able to rise versus the greenback, the pound remained steady and now, while EUR/USD is near daily highs, GBP/USD is moving to the downside. The risk aversion environment is not good for the pound. 

GBP/USD struggles to hold above 1.30 despite USD weakness

GBP/JPY testing trendline 

The pound is falling versus the yen for the fifth time out of the last six trading days. GBP/JPY bottomed at 141.85, the lowest since June 26. At the moment, is hovering around 142.00, challenging an uptrend line, that connects April and June lows. A break lower could clear the way for an extension of the decline. The next medium-term support is seen around 140.70. If the pair can hold on top of the line, a minor recovery could take place followed by some stabilization. But the technical outlook still favors a continuation of the slide. 

From a fundamental perspective, an intensification of risk aversion and another soft inflation reading tomorrow in the US with the CPI, could be enough for the pair to accelerate the slide.