In the view of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, GBP/USD faces sustained losses below 1.2850.
Key Quotes
24-hour view: While we expected GBP to weaken yesterday, we held the view that “a sustained break below 1.3000 appears unlikely” and “1.2935 is highly unlikely to come under threat.” We clearly did not expect the sharp selloff that sent GBP plunging to a low of 1.2868. The GBP weakness has not stabilized and it could weaken further today. However, severely oversold conditions could ‘limit’ any further decline to a test of 1.2850. The next support at 1.2800 is unlikely to come into view. On the upside, if GBP breaks above 1.2990 (minor resistance is at 1.2960), it would mean that the weakness in GBP has stabilized.
Next 1-3 weeks: We turned positive in GBP last Monday (10 Jul), when it was trading at 1.2830. After GBP surged to 1.3144 and eased off, we highlighted yesterday (19 Jul, spot at 1.3035) that “upward momentum is fading quickly, and the likelihood of GBP rising further is diminishing.” While our view of the rapidly fading momentum was not wrong, we did not expect GBP to plunge to a low of 1.2868 in NY trade. The breach of our ‘strong support’ at 1.3000 indicates that GBP strength has ended. The sharp pullback yesterday has room to extend, but it is worth noting that 1.2850 is a solid support. To put it another way, GBP has to break clearly below 1.2850 before a deeper pullback is likely. Meanwhile, GBP is likely to stay under pressure unless it can break above 1.3050.
