In opinion of Peter Chia and Quek Ser Leang, FX Strategists at UOB Group, GBP/USD carries the potential to drop further and revisit the 1.2250 region in the next weeks.
24-hour view: “We highlighted yesterday that ‘the rapid rise appears to be overdone’ but we were of the view that GBP ‘could advance to 1.2660 first before easing’. GBP subsequently rose to 1.2637 before staging an abrupt sell-off that sent it nose-diving to a low of 1.2325. While deeply oversold, the weakness in GBP has scope to extend to 1.2300 before stabilization is likely (the next support at 1.2250 is unlikely to come under threat). Resistance is at 1.2420 followed by 1.2460.”
Next 1-3 weeks: “We highlighted yesterday (05 May, spot at 1.2620) that GBP has moved into a consolidation phase and is likely to trade within a range of 1.2520/1.2720. The subsequent outsized decline of 2.22% (largest 1-day drop since Mar 2020) came as a surprise. The rapid and strong build-up in momentum suggests GBP could weaken further. The next support is at 1.2250. On the upside, a breach of 1.2500 would indicate that the current strong downward pressure has eased.”
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