GBP/USD: Downside bias continues to build up – UOB

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at OB Group note further downside could push GBP/USD to the 1.2445 level in the next weeks.

Key Quotes

24-hour view: “We expected GBP to trade in a range of 1.2580/1.2680 yesterday. However, GBP fell sharply by 0.90% (1.2513). The oversold decline has room to extend, but a clear break below the major support at 1.2445 is unlikely, at least not today (the next support is at 1.2395). The downside risk in GBP is intact as long as it stays below 1.2570 (minor resistance is at 1.2540).”

Next 1-3 weeks: “Yesterday (11 May, spot at 1.2625), we indicated that ‘there is still chance, albeit not a high one for GBP strength to extend to 1.2720 before the risk of a pullback increases’. We did not quite expect the sudden and sharp reversal as GBP plunged to a low of 1.2497. The break of our ‘strong support’ level of 1.2540 indicates that the GBP strength that started last Friday has ended. The burst in downward momentum indicates that the downside risk is building quickly. From here, we expect GBP to drop to 1.2445; if it can break below this major support level, it could trigger a rapid decline to 1.2390. On the upside, a breach of 1.2615 (current ‘strong resistance’ level) would indicate that the downside risk has eased.”