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GBP/USD: Risks further pullback in the short term – UOB

Lee Sue Ann, economist at UOB Group, and Quek Ser Leang, market strategist, suggest that there is still room for further GBP/USD weakness in the coming weeks.

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24 hour view: Our view that GBP/USD would trade within a range yesterday was incorrect. Instead of trading in a range, GBP/USD fell sharply and fell a couple of pips below the main support at 1.2400 (low 1.2398). Today, GBP/USD is likely to continue weakening, although severely oversold conditions suggest a sustained break below 1.2355 is unlikely. It is highly unlikely that the next major support at 1.2305 is on the horizon today. To the upside, a break of 1.2455 (minor resistance is at 1.2430) would indicate that GBP/USD weakness has stabilized.

Next 1-3 weeks: Last Monday (September 4), when GBP/USD was trading much higher at 1.2590, we highlighted that “the risk to GBP/USD appears to have shifted to the downside.” We maintain our negative view on GBP/USD, and yesterday (September 14, GBP/USD at 1.2490), we noted that “as long as 1.2555 is not broken, GBP/USD will remain weak.” Although our opinion turned out to be correct, as GBP/USD fell to a low of 1.2398 during the American session, we did not expect the rapid pace of the decline, as GBP/USD closed with a sharp decline of 0.64% (close in 1.2411). There are no signs of stabilization yet. In other words, we continue to expect GBP/USD to weaken. The next level to watch is the May low near 1.2305. To the upside, the “strong resistance” level has dropped to 1.2485 from 1.2555.

Source: Fx Street

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