GBP/USD: Further losses in store near term – UOB

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest GBP/USD risks a deeper retracement in the short-term horizon.

Key Quotes

24-hour view: Yesterday, when GBP was trading at 1.2565, we indicated that “as long as GBP stays below 1.2615 (minor resistance is at 1.2590), it might drop further.” We added, “in view of the oversold conditions, a clear break of 1.2500 is unlikely.” In line with our expectations, USD weakened even though it broke below 1.2500 and reached 1.2484 before recovering slightly. While conditions remain oversold, the weakness in GBP has not stabilised. In other words, GBP is likely to continue to drop. That said, this time around, a sustained break below 1.2470 is unlikely (the next major support at 1.2400 is highly likely to be out of reach today). Resistance is at 1.2525, followed by 1.2555. 

Next 1-3 weeks: On Monday (04 Sep), when GBP was trading at 1.2590, we held the view that the risk for GBP had shifted to the downside. However, we indicated that “any weakness is likely to face solid support at 1.2545 and 1.2500.” After GBP broke below 1.2545, we highlighted yesterday (06 Sep, spot at 1.2565) that GBP “is likely to break 1.2500, but there is another strong support at 1.2470.” In NY trade, GBP cracked 1.2500 and dropped to 1.2484. We continue to expect GBP to weaken. That said, oversold short-term conditions could slow the pace of any further decline, and the next major support at 1.2400 might not come into view so soon. Overall, only a breach of 1.2605 (‘strong resistance’ level was at 1.2640) would suggest that GBP is not weakening further.