GBP/USD: Overbought conditions could limit any advance to a test of 1.2715

Strong momentum suggests further Pound Sterling (GBP) strength; overbought conditions could limit any advance to a test of 1.2715. In the longer run, outlook has shifted from negative to positive; any advance is likely a recovery, potentially testing the resistance at 1.2755, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.

GBP can potentially test the resistance at 1.2755

24-HOUR VIEW: “Our view for GBP to trade in a range yesterday was incorrect. Instead of trading in a range, GBP surged, closing higher by 0.89% at 1.2679, its biggest 1-day gain since late Aug. Strong momentum suggests further GBP strength, even though deeply overbought conditions could limit any advance to a test of 1.2715. The major resistance at 1.2755 is likely to be out of reach for now. On the downside, any intraday pullback is expected to face strong support at 1.2620, with minor support at 1.2640.”

1-3 WEEKS VIEW: “We have held a negative view in GBP since the middle of this month. After GBP plummeted to 1.2475 and rebounded strongly, we indicated on Monday (25 Nov, spot at 1.2590) that ‘the sharp drop appears to be overextended.’ We pointed out, ‘any further decline may find it difficult to break last Friday’s low of 1.2475, which is serving as a significant support level.’ However, we did not quite expect GBP to jump quickly above our ‘strong resistance’ at 1.2650 (high has been 1.2694). Given the surge in upward momentum, the outlook seems to have shifted from negative to positive. That said, we view any advance from here as a recovery rather than the beginning of a major reversal. Overall, as long as 1.2575 is not breached, GBP could recover and test the resistance at 1.2755.”

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