GBP/USD remains within a ‘negative phase’ – UOB

GBP/USD is expected to keep the negative view in the near term, allowing a potential test of 1.2340, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Expectation for GBP to “weaken further to 1.2365” did not materialize as it staged a relatively robust and rapid rebound after touching 1.2382. Downward momentum has more or less dissipated and GBP is deemed to have moved into a consolidation phase for now. For today, GBP is expected to trade sideways, likely within a 1.2400/1.2460 range”.

Next 1-3 weeks: “We indicated yesterday (16 Jul, spot at 1.2515) that “a dip below 1.2470 is not ruled but GBP has to register a NY closing below 1.2440 in order to indicate that it is ready to move below the year-to-date low near 1.2410”. However, the rapid pace of how the price action evolved was unexpected as GBP plunged to a 27-month low of 1.2396 (before closing -0.89% lower at 1.2405, the largest 1-day decline in almost 4 months). The sharp decline indicates that the ‘sideway-trading phase’ that started last Friday (12 Jul, spot at 1.2525) has ended earlier than expected. From here, GBP is deemed to have move into a ‘negative phase’ and could move to 1.2340. On the upside, only a break of the 1.2490 ‘key resistance’ would indicate that the current downward pressure has eased. On a shorter-term note, 1.2460 is already a strong resistance level”.