A breakout of 1.2500 should mitigate the downside pressure in GBP/USD, suggest UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.
24-hour view: “We indicated last Friday that ‘as long as GBP stays below 1.2460, it could break below 1.2390’. However, GBP did not break 1.2390 as it rebounded strongly from a low of 1.2393. While downward momentum is waning, it is too early to expect a sustained recovery. Today, GBP is more likely to trade sideways, expected to be in a range of 1.2420/1.2500.”
Next 1-3 weeks: “We have held a negative GBP view for more than a week now. In our latest narrative from last Friday (19 May, spot at 1.2415), we indicated that GBP ‘is likely to weaken further to 1.2350, as low as 1.2300’. We did not quite expect the rebound to a high of 1.2484. While the rebound has slowed the downward momentum, we continue to hold the same view for now. In order to revive the flagging momentum, GBP has to break and stay below 1.2390 these 1-2 days. Otherwise, a clear break above 1.2500 (no change in ‘strong resistance’ level) would indicate that GBP is not weakening further.”