FX Strategists at UOB Group suggested further upside in Cable could be losing momentum.
Key Quotes
24-hour view: “We highlighted last Friday GBP “could retest the overnight high of 1.2560 but clear break of his level is unlikely”. We added, “there is another strong resistance at 1.2580”. GBP subsequently touched 1.2582 briefly before plummeting to a low of 1.2460. While the decline appears to be running ahead of itself, there is scope for GBP to edge lower towards 1.2430. At this stage, a clear break of 1.2430 is unlikely (next support is at 1.2400). On the upside, only a move back above 1.2530 (minor resistance is at 1.2500) would indicate that the current soft patch in GBP has stabilized. Higher up, the 1.2580 level remains as a very solid resistance”.
Next 1-3 weeks: “We highlighted last Friday (20 Sep, spot at 1.2525) that “the recovery phase that started about 2 weeks ago (05 Sep, spot at 1.2245) is deep in overbought territory”. We added, “GBP has to ‘punch’ through 1.2580, otherwise, if GBP were to ‘hang around’ these elevated levels, the risk of a short-term top would increase quickly”. While GBP touched 1.2582, the subsequent sharp and rapid decline to a low of 1.2460 was not exactly expected. For now, the recovery phase is deemed as intact but the odds for further GBP strength have clearly diminished. Unless GBP can move and stay above 1.2530 within these few days, a break of 1.2430 (no change in ‘strong support level’) would indicate that the recovery phase has run its course and that 1.2582 is a short-term top”.
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