GBP/USD now faces downside pressures – UOB

In opinion of FX Strategists at UOB Group, Cable could now move into a consolidation phase.

Key Quotes

24-hour view: “While we noted yesterday that ‘upward momentum has waned’, we were of the view that ‘it is too early to expect a major pullback’. We expected GBP to ‘consolidate and trade between 1.2570 and 1.2685’. However, GBP plummeted to an overnight low of 1.2551 before extending its decline upon opening this morning. The rapid and sharp pull-back appears to be running ahead of itself but the weakness is not showing sign of stabilizing. In other words, GBP could continue to weaken and while a break of 1.2500 is not ruled out, GBP is unlikely able to maintain a toehold below this level (next support is at 1.2465). On the upside, only a move above 1.2600 would indicate the current weakness has stabilized (minor resistance is at 1.2575).”

Next 1-3 weeks: “We highlighted yesterday (13 Jul, spot at 1.2625) that GBP ‘appears to be struggling to maintain its momentum’. We added, ‘while the outlook is still deemed as positive, GBP has to close above the major 1.2685 resistance before further sustained gains can be expected’. GBP subsequently plunged to an overnight low of 1.2551 before extending its decline after NY close. While our ‘strong support’ at 1.2520 is still intact, the price action is enough to indicate that the positive phase that started earlier this month has run its course. The current pull-back has scope to extend lower but at this stage, any weakness is viewed as part of a 1.2430/1.2650 range. In other words, GBP is unlikely to weaken significantly below 1.2430.”